Finding the balance between stability and return: moving beyond cash

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Following a period of rapidly rising interest rates across Europe from 2022, cash once again became a meaningful component of investors’ portfolios. However, as the rate environment has started to shift, so too has, the outlook for cash returns. Cash can feel like certainty but, with inflation impacting the real return, the case for re-assessing excess cash holdings is becomes increasingly compelling.

For financial advisers, this presents a familiar challenge: how do I help my clients move beyond cash in a way that can preserve capital stability while enhancing potential returns? For some, the answer may lie in short-term corporate bonds.

While cash funds prioritise capital preservation and liquidity, the returns are inherently linked to prevailing deposit rates. Cash funds can be further constrained by their requirement to invest in securities with a credit rating of ‘A’ and above, thereby limiting a portfolio manager’s ability to deliver returns above the prevailing deposit rate.

In contrast, short-term corporate bond funds can invest in fixed income securities from across the credit profile, with low duration – typically in the region of one to three years – and relatively short maturities – up to five years. This may allow investors to earn additional yield from credit spreads, providing the potential for higher returns than cash while still maintaining a strong focus on capital stability.

Why short-term corporate bonds?

One of the key attractions of short-dated credit is its consistency of returns. Over the past 25 years, it has delivered positive returns in 22 out of 25 calendar years, with only three years of negative performance. This compares favourably with broader credit markets across all maturities, which experienced 19 positive and six negative years.

This relative stability is largely due to lower sensitivity to interest rate movements. With shorter duration, price fluctuations tend to be more contained, making return profiles more predictable — an important consideration for investors seeking stability, particularly in uncertain market environments.

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A practical step beyond cash

In an environment where investors are seeking more from their cash without taking on undue risk, short-term bonds offer a natural progression. The need for resilient income, liquidity and stability remains high, particularly as market uncertainty persists.

The recently launched Standard Life Short Dated Bond Fund, which invests in Aberdeen Investment’s actively managed Short Dated Enhanced Income Strategy, is designed with these requirements in mind. It provides a practical way for investors to remain cautious, while seeking higher income than traditional cash solutions.

How does the fund work?

The fund invests at least 70% in bonds issued by corporations and governments anywhere in the world with a maturity of up to five years, including sub-sovereigns, inflation-linked and convertible bonds. The fund may invest up to 20% in sub-investment grade bonds.

Aberdeen’s investment team seek to maintain a minimum average credit rating of A- and an average duration within a range of one to two years for the portfolio in normal circumstances. While this may fluctuate, duration will not exceed two and a half years at any time.

Duration is a key measure of interest rate risk. In general, the higher a bond’s duration, the more its price will fall when interest rates rise. By maintaining a lower duration profile, the fund seeks to reduce volatility and support capital stability.

Performance

The strategy has demonstrated its ability to deliver returns in excess of both its benchmark and cash, with positive returns in 31 of the past 32 months since launch. As with any investment, short-term volatility can occur, and recent geopolitical events have impacted both equity and bond markets. However, the fund has remained resilient, with a maximum drawdown since launch of -1.0% (March 2026), and it continues to sit comfortably within the ESMA 2 risk category.

Final thoughts

As the interest rate cycle evolves, the role of cash within portfolios is also beginning to change. While it remains an important tool for liquidity and capital preservation, its ability to deliver meaningful real returns is becoming more limited in a lower rate environment. 

For advisers, the opportunity is to bring clarity to how much cash a client needs for reassurance and liquidity, and how much may no longer be servicing a clear purpose.  Short-term bond strategies offer a measured next step up from cash by introducing a modest level of additional risk in exchange for enhanced return potential. 

Solutions such as the Standard Life Short Dated Bond Fund can play a valuable role here by combining low duration, diversified credit exposure and a continued focus on capital stability, it offers a practical way for investors to remain cautious, while putting cash to work more effectively. 

Ultimately, the value of advice is helping clients make peace with uncertainty without defaulting to decisions that may not serve them.  

The Standard Life Short Dated Bond Fund is just one of many lower-risk options that Standard Life offer. We have a fixed-rate structured deposit product from Barclays that offers 11% (3.03% CAR) over a term of three years and six months, available until 3 June 2026. This is further complimented by a number of deposit options from Société Générale.  

Please speak with your Standard Life Business Manager, visit the Investment Choices section or our Fund Centre on standardlife.ie for further information on our deposit options and our funds.