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ReFlow has launched an innovative new cash management service called ReFlow Client Tailored Equitization (CTE).
CTE allows mutual funds to equitize cash balances to their own fund NAV, eliminating cash-induced tracking error in fund performance and restoring control of market exposure to portfolio managers. |
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Who should use Client Tailored Equitization? |
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CTE offers a significant value proposition to portfolio managers. If you find yourself in any of the following situations, you could benefit using CTE: |
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Managers who currently use futures to mitigate the tracking error caused by carrying cash in their portfolio. |
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Managers who would like to carry a larger cash balance, but are concerned about the consequential tracking error. |
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Managers who would like to opportunistically gain or reduce market exposure without the transaction and portfolio rebalancing overhead. |
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Managers seeking an innovative liquidity solution to meet cash requirements without the corresponding flow-driven trading. |
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How it works |
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CTE is a total return swap. The mutual fund pays ReFlow the return on cash (Libor + Fee), and ReFlow pays the mutual fund the change in its NAV, adjusted for management fees. Managers can automate CTE against cash balance or set daily as desired. There is no transaction cost to enter into CTE or to change the notional amount of CTE coverage. |
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Value Proposition |
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The following outlines the value proposition for a sample fund normally carrying 6% cash balances with a target return of 15% and standard deviation of 9%. The fund has a 70% correlation to its closest futures contract. |
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Cash |
Futures |
CTE |
| Average Tracking Error |
 60 bps |
30-60+ bps |
0 bps |
| 99% Tracking Error |
75+ bps |
100+ bps |
0 bps |
| Direct Cost |
n/a |
1-5 bps/year |
10-18 bps/year |
| Indirect Costs |
n/a |
Reconciliation
Ticket charges
Time |
n/a |
| Other |
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Basis risk can exceed
equitization benefit. |
Can be automated against
cash balances.
Can be used as a "dry powder"
reserve for quick in/out. |
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