The following is excerpted from the new issue of Money Fund Intelligence. This month, we discussed the No. 1-ranked Touchstone Institutional Money Market Fund and top-ranked retail Touchstone MMF with veteran fund managers John Goetz, Jay Devine and Rick Ellensohn of Touchstone's sub-advisor Fort Washington Investment Advisors, a member of Cincinnati-based Western & Southern Financial Group.
Goetz told MFI, "Right now, liquidity and credit are crucial to running the funds. In terms of liquidity, the key elements are knowing the funds' goals, keeping a handle on which assets are longer term and which are not, and understanding how seasonal cash flows can affect the funds' portfolios in terms of the availability of suitable securities in the market and their impact on yields." Devine added, "It's also important to keep up with the daily news headlines and being able to separate fact from fiction. This has been particularly true with regards to recent news on the credit front."
Goetz noted that when it comes to flows, "The team has a solid grasp of the cash flows of the funds. When we see large flows that we're not certain of, we take the time to investigate and obtain an understanding of the investor's time horizon so we have some idea of the stickiness of the assets." Devine continues the thought, "We explain the funds' management strategies and inquire about their cash investment goals to make sure the funds are appropriate for their needs. Through this type of due diligence, we develop a good picture of how long the money might be in the funds."
MFI asked the Touchstone team, "What's been the key to your success?" Goetz responded, "We believe it's our approach. The three of us work together in managing the funds' portfolios -- both taxable and tax-free.... We determine our outlook for interest rates and combine that with the shape of the money market yield curve to help us determine which part of the curve looks most attractive. We then determine a target for each fund's weighted average maturity that combines our market analysis with the liquidity needs of the particular fund."
He continues, "From there, we invest the portfolio by using a combination of floating, variable rate and fixed rate instruments to meet the targeted maturity. Fixed rate securities are bought with maturities to match the part of the curve that we think is most attractive at any point in time. In combination, the variable rate, floating rate and overnight money provides liquidity while the fixed rate portion of the portfolio helps to anchor the yield.... Currently, the team is not buying ABCP -- we had little in the portfolios to begin with -- and we have never had SIV exposure."
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