Return on MFA investments

For Sparwood the 2017 return on our MFA investments was really poor. We have just under $8,000,000 invested with MFA, with the following returns:
- MFA Bond Fund 0.25% interest for 2017
- MFA Intermediate Fund 0.78%
- MFA Money Market Fund 0.96%
Overall return on investment from MFA for 2017 was 0.43%, compared to the Credit Union Redeemable 12 month deposits of between 1.5% and 2.6%.
Have other municipalities experienced a similar trend, and could you share your strategies on how you are dealing with investments.

Comments

  • Hi Michele, for the past two years, we have removed the bulk of our monies in MFA and invested in short term GIC's with the Credit Union. We did see a much better return.

  • Hi Michele, similar to Allison, we have moved a significant amount of our funds to the Credit Union where we're seeing better returns as well as investing a portion with Raymond James for diversity.

    Karen Sharp, Village of Radium Hot Springs

  • Hello Michele

    This is an issue that I think everyone who has cash holdings with the MFA is having. The investment products they offered in the past worked however with the changing market conditions these products cannot offer the same returns as commercially available products (chartered banks).

    The MFA has started a high interest savings account through CIBC with a rate of Prime + which is currently 1.96%. Unlike a GIC the HISA is liquid, and has a very quick withdrawal time frame (day or two). I prefer the HISA due to the liquidity however I was able to have the City's bank beat the MFA rate with their own HISA at 2%. I know it is a small margin however the simplicity of 1 bank vs 2+ is well worth it.

    I could talk all day on this subject because as a CFO I feel we are under pressure to achieve reasonable return on investments, while keeping investments simple, safe, and reasonably liquid due to ever changing environments and cash requirements that occur.

    Adam

  • Thought it might be beneficial to take a look back to see what would have happened if you had left funds on deposit in a pooled fund in early 2018 versus pulling monies out to deposit in a local credit union GIC. The first thing to remember is that local governments are not required to mark to market their investments. So when looking at returns of a unitized pooled fund (which is required to be valued daily) and another investment product like a GIC you are not actually comparing apples to apples. One also needs to look at diversification. Buying an actively managed fund of over 175 different names is more diversified and offers a better risk adjusted return than buying a basket of credit union GIC's with the same risk exposure.

    In early 2018 we saw some redemptions from the pooled funds, particularly the bond fund, as interest rates had dramatically risen at the end of 2017 and holders saw some negative returns on their statements. This is the mark to market effect and by selling they crystallized their losses as opposed to having an accounting loss and having the opportunity to recover. They started receiving advice from various brokers that the pooled funds used to be good but with changing market conditions these products are no longer competitive. Our recommendation to people that called about the returns was that you are better off staying in the fund, particularly if you do not require the funds right away. The result was those local governments who remained in the bond fund are now receiving a yield of close to 4% , likely more than the GIC's that were purchased with the redeemed funds.

    If rates had continued to rise, instead of dropping, and you did not require the funds for the next 3 years (duration of the bond fund is 2.5 years) you would likely be better off holding onto the fund in that case as well, as rising interest rates allow us to invest maturing bonds in the portfolio at higher and higher yields.

    We are definitely living in interesting economic times. Its important to remember to fully understand the products available so you can make informed decisions.

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