Money Market

McLean Budden actively manages “money market” mandates to add value for our clients.  Our investment style is geared to maximize the risk-adjusted return of the portfolio.  Value is added through term, sector and credit quality management. We maintain a strategic approach in setting term and sector weights but continually seek opportunities to enhance yield through spread trading and switching.  Our money market investment process is very similar to our management of bond portfolios.

Decision Making

The money market team formulates investment strategies based on the 3-month and 12-month outlook for interest rates. The portfolio strategy is determined by analyzing central bank policies, economic and financial market research and evaluating the views of the Fixed Income Group,

The key criteria in our decision-making are:

·        monetary policy and the Monetary Conditions Index (MCI)

·        economic growth expectations

·        credit spread premiums and credit analysis of specific issuers

·        implied forward market rates relative to fair value measures

·        yield curve structure and break even rates

 Each of these criteria is continually examined to determine turning points in interest rates.  The process produces targets for credit and sector weights and term to maturity.  The strategy is implemented by the money market traders who have discretion over the timing and method of achieving the objectives.

Trading Strategy

Trading opportunities are continually sought to add yield.  This includes the purchase of higher-yielding commercial paper.  Yield anomalies sometimes exist when brokers are offering “off the run” T-bills above the interpolated curve.  We also take advantage of situations where brokers are long a particular position.

Yield Pickup Strategy

Corporate paper, bankers' acceptances (BA's) and provincials are used mainly in the 1-month and 2-month areas to enhance yield.  We limit the term of these credits to 60 days to minimize credit risk exposure.  As a general rule we forego yield to minimize credit risk in longer dated issues.

The yield to maturity of the portfolio will normally be higher than the index.  Diversification amongst maturity and credit quality categories enables the portfolio to generate above average levels of income.

On occasion, we have enhanced yield through term deposits, government residuals, strips and coupons.

Investment Process

Portfolio Composition

We strive to maximize return through a well-diversified portfolio of securities.  We look to add value with “off the curve” securities, provincials, bankers acceptances and commercial paper as well as “rich” and “cheap” areas of the curve through break-even calculations.  When the portfolio is short, the exposure to corporate paper plus bankers acceptances is greater while it is low when our term is long.

Term will normally be close to that of the index unless there is a strong conviction on the direction of overall interest rates.  The portfolio's duration will range between 15 and 180 days.  Non-government credits will have a maximum term of 60 days.  The money market team uses mid-term, barbell and laddered portfolio distributions to optimize the expected return.  Corporate paper is used to enhance yield in the shorter maturity spectrum (less than 60 days) but is generally not used for interest rate anticipation strategies.  Accordingly, when the portfolio is relatively long in average term, it will be heavily weighted in Federal treasury bills.  When the portfolio is low in term, an emphasis is placed on corporate credits.

For unconstrained portfolios, we mange sector commitments within the following ranges:

*              Provincial issuance is rare and normally unavailable, however we have and will respond to attractive provincial offerings.

For unconstrained portfolios, the following credit quality guidelines apply:

1. Only buy approved names.
2. Minimum 30% holding of Government of Canada obligations.
3. No more than 25% of any fund may be exposed to one provincial name.

4.      No more than 10% of any fund may be exposed to one corporate name.

5. No more than 5% of a fund may be exposed to a corporate name rated R1 low and nothing below R1 is allowed.
6. R1 Low Credits are not to exceed 30% of any fund's money market assets.
7. No more than 50% of the money market assets of any fund can be in commercial paper.
8. No more than 50% of the money market assets of any fund can be in BA's
9. No more than 25% of the money market assets of a balanced fund can be in one corporate name.

Money market portfolios will typically contain 10 to 20 issues with a larger amount more evident when corporate issues provide favourable risk-adjusted opportunities.

The money market team is responsible for analyzing corporate credit quality. Together with internal research and rating agency opinions the money market team makes proposals for additions and deletions to the Approved List. In addition, the research of the Canadian Equity Groups is used as an input in the decision making process.

Money market turnover is high but will partially depend on the market.

McLean Budden's strategy and approach to money market investments has remained consistent over time.  Nevertheless, the firm has increased the human and technical resources in this area and hired a professional full time money market specialist in 1996.  The team currently has three investment professionals who jointly formulate money market investment strategy

Fees

Money Market Specialty

The segregated investment management fee for specialty money market is based on the end of quarter combined market value of the funds and billed in arrears on a quarterly basis. The fee schedule is as follows:

0.05% per annum of the total portfolio size

Minimum Fee: $25,000*

HNW Fees

Individual Segregated Portfolios
(including combinations of individual securities and pooled funds)
First $2 million		1.00%
Next $8 million		0.50%
Next $15 million		0.35%
Above $25 million		0.25%
Minimum fee $20,000
* Assets invested in mutual funds will not be subject to this schedule.
Pooled Fund Portfolios
First $2 million		1.00%
Next $8 million		0.45%
Next $15 million		0.35%
Above $25 million		0.25%
Minimum fee for one fund $5,000
Minimum fee for multiple funds $10,000
* Assets invested in mutual funds will not be subject to this schedule.  Fees include
custodial services.

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