June 2010
FLASH PRODUCT Cash management: Natixis Court Terme 6 mois, a new investment solution Due to the crisis currently affecting the eurozone, the prospects of a rise in interest rates are receding. Investors therefore have to find solutions to adapt to a sustained period of low money market interest rates. In this context, Natixis Asset Management has just launched Natixis Court Terme 6 mois, a new short-term bond fund that aims to achieve more attractive returns for stable euro-denominated cash balances.
o Money market normalization called into question by the Greek crisis On 8 October 2008, the ECB changed the way it implements its monetary policy. On that date, it began providing fixed interest rate facilities to pump liquidity into the financial system. The aim was to avoid putting pressure on the banking system at a time of great fragility. This strategy enabled the banking system to weather the crisis without too much difficulty. The banks were able to manage the risk and thus return to a more profitable profile.
ECB and EONIA rates from January 2008 to 27 May 2010
With the recovery growing stronger and the banking system returning to improved profitability, the ECB had put in place all the measures necessary for a gradual return to normal. The ECB’s stance gave the impression that from the fall of 2010 monetary policy would return to a pattern of operation consistent with that seen before the crisis. This normalization was expected Source: Datastream to involve the return of variable rate operations to enable the ECB to better control the liquidity allocated to the money market. At the same time, EONIA was expected to reconverge towards the main refinancing rate, as was the case prior to 8 October. The very low level of EONIA was part of the ECB’s strategy to facilitate a return to equilibrium in the banking system. In this context, no rise in the ECB’s interest rates was envisaged before the second quarter of 2011, in view of the weakness of activity and the absence of inflation. This scenario has been called into question by the current crisis in the eurozone. Banks holding part of Greece’s sovereign debt could potentially find themselves in difficulty, particularly in the event of contagion to other countries. To ward off this risk, the ECB took two types of measures in May. The first involved a revival of long-term operations (three and six months) to provide liquidity at fixed rates. Once again, the aim was to assist the banks by preventing them coming under pressure. The second involved the ECB purchasing public and private debt. It can now buy paper and bear the risk in place of the banks. The continued uncertainty of developments in the eurozone will inevitably give rise to questions about the ECB’s actions. The strategy of a return to orthodoxy has been delayed and the rise in the ECB’s interest rates will take place later. Interest rates are therefore expected to remain low in the eurozone for a good while yet.
Facilities for eurozone credit institutions associated with monetary policy operations (in billions)
CORPORATE AND INVESTMENT BANKING / INVESTMENT SOLUTIONS / SPECIALIZED FINANCIAL SERVICES
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Source: Datastream
FLASH PRODUCT / June 2010
o Natixis Court Terme 6 mois, a new solution for investing stable cash balances It is in this context of sustained low Eonia rates that Natixis Asset Management offers Natixis Court Terme 6 mois. This new short-term bond fund with a six-month investment horizon aims to outperform money market mutual funds while maintaining limited volatility and high liquidity. In order to maintain transparency for investors and to emphasize the choice of securities with slightly longer maturities than those currently included in Natixis Asset Management’s money market funds, it has been decided to classify this fund in the bond category. Natixis Court Terme 6 mois is nevertheless managed within the money market team and its investment universe is limited to issuers eligible for Natixis Asset Management’s money market mutual funds. The fund also operates within a modified duration range of 0 to 0.5. Over its minimum recommended investment period, Natixis Court Terme 6 mois aims to achieve an annualized performance that exceeds capitalized Eonia by 0.30% in the case of I(A) and I(D) shares and 0.20% in the case of the R share (after deduction of management fees). The maximum residual life of each security at the time of acquisition is 24 months, with the weighted average life (WAL) of the portfolio being kept below 12 months. * Weighted Average Life.
o Active management of modified duration combined with rigorous securities selection criteria The investment team uses several sources of added value to achieve the fund’s performance objective: n Active management of modified duration through fixed/variable rate allocation The Natixis Court Terme 6 mois investment team relies on the core scenario drawn up by Natixis Asset Management’s Macroeconomic and Money Market Committees. Depending on expectations with regard to the central banks’ monetary policies and yield curve fluctuations, the money market investment team decides on an appropriate allocation between fixed and variable rates
Fixed /variable rate allocation • Macroeconomic scenario • Expectations for central banks' monetary policies
Construction of the portfolio • Money market investment universe • Financial research • Eligibility of issuers and counterparties
Selection of issuers n Rigorous issuer selection to tap the credit premium Natixis Court Terme 6 mois purchases all types of debt securities issued by private entities or governments. Their minimum long-term rating will be BBB- or Baa3 (Investment Grade). In the case of issuers not having a long-term rating, and only if the debt securities have a residual maturity of less than one year, the minimum short-term rating will be A3 or P3 or F3. The fund is not permitted to invest in securities issued by securitization vehicles. The investment team relies on the recommendations of Natixis Asset Management’s team of credit analysts for its selection of securities within the money market investment universe. In addition, a division dedicated to Credit Risk in the Risk Department constantly checks compliance with the conditions for eligibility of the securities included in the investment universe.
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FLASH PRODUCT / June 2010
Investment team Natixis Court Terme 6 mois is managed within the money market investment team of Natixis Asset Management, Europe’s thirdlargest operator in cash management(1). The money market investment team comprises 11 portfolio managers and two financial engineers managing over ₏70 billion of assets as at the end of March 2010(2). This specialist team is very stable, with an average length of service of 13 years and a consistent track record for over 10 years. (1) Source: Feri Fund Market as at 31 January 2010 (2) Source: Natixis Asset Management
For further information n Your usual relationship manager at Natixis Asset Management will be pleased to answer any further
questions
n See the detailed information sheet for Natixis Court Terme 6 mois in the "Our Products" section on
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