Federated's Cunningham: Cash Is Class
Federated Investors says in their latest monthly update that "Cash is an asset class again." Money Market CIO Deborah Cunningham asks, "Why should investors think of liquidity as an asset class? One word: yield. Cash is no longer just a place to store operating funds until something better shows up or to pay bills and expenses. It's again an important part of a strategic allocation of investor assets. In 2018, government, tax-free and prime money market fund categories all had positive returns, while the lion's share of the investment world fared ... well ... you know.... Many prime money funds currently earn more than inflation, and government and muni funds are not far behind, and they all bring a stable counterbalance to risk assets and even bonds." The piece also asks, "How is liquidity performing in the current volatile market environment? Quite well. Liquidity is generally a flight-to-quality asset class, and the turbulence of the last few months has been no exception.... While obviously not as risk-free as U.S. Treasuries or federally insured accounts, for the better part of 50 years, money markets mutual funds have been stable products." Finally, they write, "What is the outlook and positioning for liquidity strategies over the next 3 to 6 months? We are looking for a data-dependent Federal Reserve to hike rates twice in 2019, with the first most likely coming in June. We think an upward-sloping yield curve will continue to anticipate these moves. That means liquidity strategies should be best positioned to capture those market changes by focusing on variable-rate securities and by shortening weighted average maturity targets. The industry will be closely watching how many of the inflows that came because of volatility stick around simply based on the return now being offered."
