Northern Trust’s two ultra-short fixed income mutual funds have surpassed USD4bn in combined assets, as investors continue to seek alternatives to money market funds in a continuing environment of low-interest rates.
As of 31 December 2013, the Northern Ultra-Short Fixed Income Fund (NUSFX) had USD1.45bn in assets and the Northern Tax-Advantaged Ultra-Short Fixed Income Fund (NTAUX) had USD2.63bn, with combined assets up 47 percent from a year earlier.
“Our ultra-short strategies continue to grow in size, confirming our view that investors are eager to find lower risk strategies that still offer the potential for some incremental yield,” says Colin Robertson, managing director of fixed income for Northern Trust. “We believe that interest rates will remain low for the foreseeable future, helping our ultra-short funds gain further momentum among investors seeking a total-return strategy.”
Both ultra-short mutual funds were launched in 2009 as a complement to Northern Trust’s established cash management and ultra-short duration portfolio management strategies, including more than USD200bn across institutional and personal client assets. Ultra-short strategies are an option for investors with an appetite for modest interest rate risk, credit risk, and liquidity risk compared to traditional money market funds.
“With low interest rates and increased regulatory pressure on money market funds, investors are looking for opportunities to improve yield without taking more than moderate risk in the process," says director of ultra-short fixed income Carol Sullivan. "We have been in this business a long time. Northern Trust has decades of separately managed account history in this strategy prior to creating the ultra-short mutual funds. Our emphasis on risk management, credit research, and diversified portfolio construction allows us to manage downside risk as the investment environment changes. In targeting a neutral duration of one year, the ultra-short funds can be part of an investor's larger fixed income strategy, helping them achieve specific investment goals."
The minimum investment required for each fund is USD2,500. The current net expense ratio for Northern Ultra-Short Fixed Income Fund is 0.26 per cent, or USD26 for every USD10,000 invested. The current net expense ratio for Northern Tax-Advantaged Ultra-Short Fixed Income Fund is 0.25 per cent. According to Morningstar, as of 31 December the average expense ratio for ultra-short bond funds is 0.63 per cent.
