Given the recent performance of our Cash+ portfolio, we would like to provide an update to investors.
Over the past three trading days (12 to 14 April), Cash+ has seen a drawdown of 0.18%. The volatility in recent days has primarily been caused by corporate bond exposures within the LionGlobal Short Duration Bond Fund.
We are in close touch with LionGlobal and the fund managers. While periods of modest volatility are to be expected, the chances of sustained or permanent losses are low given that the underlying investments of Cash+ are high-quality bonds.
As a reminder, while Cash+ is a low-risk product, it is not risk-free. To earn an enhanced return above bank deposit rates, the underlying funds are exposed to government bonds, commercial bills and high-quality corporate bonds which are traded daily and therefore subject to market volatility.
For example, between the launch of Cash+ and 31 March 2021, there were 15 out of 57 trading days where the daily return was negative. In all but one of these cases, the negative return was offset by positive returns within three days, and in one case the total return was positive again within two weeks.
Going further back, during the extreme market volatility of early 2020, our historical backtesting shows that the Cash+ portfolio would have experienced a peak to trough drawdown of -0.82% during March and April 2020. This loss was fully recovered by the end of May 2020, and the return for the full-year 2020 was +2.72%.
In summary, we have constructed Cash+ with a modest amount of risk exposure in order to provide investors with an enhanced return above bank deposit rates.
From time to time, there will be periods of modest drawdown, as we are experiencing now. We encourage investors to be patient and not to make rash decisions during these periods. Historical returns show us that as long as investors have a slightly longer time horizon (3 – 6 months and longer), they should be rewarded with a positive return and a yield premium above capital guaranteed alternatives.
For further information on interest rate risk, credit risk, and the underlying exposures within Cash+, please refer to our recent Q1 performance write-up here.