Philosophy
To develop and implement optimal portfolio strategies, CIS follows disciplined, transparent investment processes that have been proven through numerous market and credit cycles for all of our strategies:
The security selection process for Dreyfus money market funds begins with a review of prospectus investment guidelines combined with portfolio diversification, credit quality, duration and weighted average maturity, as definied by Rule 2a-7. From there, fund managers leverage intensive bottom-up research while considering economic and market variables. The effort to preserve investors' principal in our money market funds focuses on three key areas:
1. Structuring portfolios that meet the regulatory requirements of Rule 2a-7;
2. In-depth and continuous credit research and market risk analysis processes; and
3. Ongoing risk and audit oversight.
Within CIS, these responsibilities lie with portfolio managers working closely with traders, credit research analysts, investment accounting legal groups and client service professionals.
Our short duration portfolio construction process begins with a thorough and detailed understanding of each client's specific investment objectives, risk tolerance, and benchmark expectations. Our investment approach is characterized by the following:
- Management of client-specific requirements such as low volatility, liquidity and specific duration targets;
- A disciplined team structure draws the best ideas into the decision-making process through the interaction of investment professionals;
- Top down quantitative and macroeconomic analysis guides asset allocation among sectors, industries and yield curve positioning; and
- Fundamental analysis identifies individual issues with excellent liquidity and return advantages within the short duration universe.
Our index investment process is topdown and driven primarily by the structure of the benchmark. Using stratified sampling, we divide the index into cells to allow for precise matching of sector allocations, duration, yield curve and credit quality. In addition, we:
- Anticipate near-term changes to the index (e.g., new issuance, issuer downgrades) to minimize tracking error;
- Periodically adjust for changes to index selection criteria and the index structure;
- Avoid market and sector timing issues by remaining as fully invested as practical; and
- Seek to add value through proprietary credit research, security selection and trading, with risk controls that limit potential variance from the index.
The stable value investment process is marked by four key characteristics:
1. A risk-averse style;
2. A disciplined, quantitative approach;
3. A flexible model; and
4. Opportunistic management.
Recognizing that our clients have hired the Stable Value Team to preserve principal and deliver stable returns over time, we focus primarily on ensuring that the portfolios are managed to achieve these objectives1. Total return, while important, is always secondary to providing investors with a safe harbor for their long-term needs.
Through a combination of yield curve positioning and a top-down view, we take a relatively cautious approach to cash collateral reinvestment, supported by the belief that the majority of earnings from a securities lending transaction should come from the borrower (or as a result of the borrowing activity), not from the investment of a client's cash collateral.
Specifically, our strategy seeks to:
- Safeguard the client's principal;
- Assure that all cash collateral is invested in a timely manner;
- Maintain a diversified portfolio of investments;
- Maintain adequate liquidity to meet our clients' anticipated needs; and
- Optimize the spread between collateral earnings and the rebate rate paid to the borrower.
