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Industry Trends, Portfolio Management, And Credit Unions’ Emergence From The Long Shadow Of The Recession

Callahan’s Second Annual Investment Forum brings to light positive trends that should lead to a strong 2014 for the credit union industry.

Earlier this month, credit union executives gathered in Boston for the Second Annual Investment Forum co-sponsored by Callahan Associates and TRUST, mutual funds for and by credit unions. An economic overview that focused on how credit unions are emerging from the long shadow of the great recession kicked off the event.

Despite challenges such as the prospect of an era with continued slow economic growth, fiscal austerity measures overseas, the government shutdown, rising national debt, and a tepid jobs market, attendees discussed a number of positive trends that should lead to another strong year for the credit union industry in 2014.

Positive trends discussed included:

  • The economy is still growing.
  • Long-term interest rates should increase as the economy strengthens; short-term rates should remain low.
  • The continued improvement in the jobs market is lifting household income.
  • Consumers are no longer deleveraging; credit and debit usage will grow along with household incomes.
  • Rising home sales and values will support mortgage and equity lending, but refis will fade and become a smaller percentage of production.
  • Rising consumer confidence, income, and pent-up demand is supporting auto loan growth.
  • The growth of savings is consistent to slightly lower. As rates rise, the savings mix will shift from checking and regular shares toward interest-sensitive products such as long-term certificates and money market savings accounts.

Credit Union Investment Trends

In addition to the overall economic environment, Jay Johnson, executive vice president of Callahan Associates, shared the latest industry investment trends including that more than 37% of credit unions’ $1.07 trillion in assets are investments.

The $402.3 billion credit unions held in investments as of June 30, 2013, are primarily held in Agencies, and credit union portfolio durations have extended. This shift to a longer duration is both intentional portfolio managers seeking higher yields are going further out on the yield curve for higher coupon income as well as unintentional recent rises in rates have resulted in the extension of any bond with embedded options, such as MBS, CMO, and Callable Agencies. For example a bond that was previously in the 1-to-3 year maturity bucket might now be in the 3-to-5 year maturity bucket.


As food for thought, Johnson shared three specific credit union investment strategies that are earning higher rates in the current environment and noted that, on average, credit unions with longer investment maturities are outperforming those with higher allocations in cash. As a closing thought, one credit union investment manager shared the following perspective, Staying in cash is not conservative, it is a bet that rates will go up.

Portfolio Management: More Art Than Science

Jeff Greenert, senior portfolio manager for Vystar Credit Union ($4.9B, Jacksonville, FL) discussed his own portfolio management decision process with conference attendees. Some of the tips he shared include:

  • Treat Management As Your Client Preparing clients for the future is more important than reviewing current performance. ALCO and management need to be prepared for future risks.
  • Define Acceptable Risk Without clear risk parameters, portfolio managers are left to imply risk tolerance from statements. Credit unions need to define the balance between income and preservation (safety) they are willing to accept.
  • Assess Shifts In Yield Curve Rates are not likely to move in parallel and instantaneous 100-basis-point increments. Reviewing partial duration, which measures sensitivity to changes along the yield curve, is critical.
  • Balance Rate Risk Does the credit union need rate-sensitive assets to offset loan growth or does it need loan-alternative securities because of no loan growth?
  • Portfolio Analytics Investment portfolios now represent 30-50% of most credit unions’ assets. Accurate and flexible assessment of income and risk is difficult without portfolio and security analytics.

The Investment Forum included a number of industry experts who shared best practices on topics including: commercial and secondary market loans, asset liability management, risk-based pricing for member business loans, treasury inflation protected securities (TIPS), MBS/CMO security selection, and the importance of having and following an investment plan.

For more information about the Investment Forum and other upcoming events sponsored by Callahan Associates or TRUST, mutual funds for and by credit unions, contact us at info@trustcu.com.

About TRUST, Mutual Funds For And By Credit Unions

Trust mutual funds options keep credit unions always invested, are professionally managed, and are based on the cooperative values of credit unions. The Ultra-Short Duration portfolio is one of three options available through TRUST. Callahan Financial Services, Inc., the distributor of TRUST, provides the resources and information credit unions need to support investment decisions. Contact ustoday to learn more or visit www.trustcu.com.

Kevin Heal is Vice President of Sales Business Development for the Trust for Credit Union (TCU) family of mutual funds.


Trust Mutual Funds (TCU) is a family of institutional mutual funds offered exclusively to credit unions. Callahan Financial Services is a wholly-owned subsidiary of Callahan Associates and is the distributor of the TRUST mutual funds. Goldman Sachs Co is the advisor of the TRUST mutual funds. To obtain a prospectus which contains detailed fund information including investment policies, risk considerations, charges and expenses, call Callahan Financial Services, Inc. at 800-CFS-5678. Please read the prospectus carefully before investing or sending money. Units of the Trust portfolios are not endorsed by, insured by, obligations of, or otherwise supported by the U.S. Government, the NCUSIF, the NCUA or any other governmental agency. An investment in the portfolios involves risk including possible loss of principal.

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This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
October 21, 2013

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