Multi-managers up cash positions

Multi-managers and multi-asset investors bolstered their cash positions as markets rose throughout the start of the summer, with investors remaining nervous after last year’s summer falls.

Data from research giant Morningstar shows that in spite of market gains throughout June and July, multi-asset managers continued hoarding cash, which they had started building up prior to the severe market drops in May.

The managers’ move to increase cash in April was well timed as the FTSE 100 dropped nearly 7.3 per cent in May. However, the UK stockmarket has now clawed back some of those losses, having posted gains of 4.7 per cent and 1.1 per cent in June and July respectively. It also gained nearly 1.2 per cent in August.

The reason for the continued elevated cash levels – which include cash and cash-like assets such as very short-dated bonds – is thought to be key meetings and events in September which will give markets an indication of how the eurozone’s bailout mechanism the European Stability Mechanism (ESM) will work.

The cash drive also comes as US economic growth is slowing, while the UK remains in recession and China has started cutting its interest rates in a bid to stop its economy from cooling too quickly.

Funds in the IMA Mixed Investment 40-85 per cent Shares sector had an average of 9.5 per cent in cash in July – roughly 1.5 percentage points higher than the 8.1 per cent figure managers had built up by the end of April ahead of May’s market slump.

The IMA Flexible Investment sector – regarded as the more aggressive of the mixed asset sectors because of funds’ ability to invest 100 per cent in equities – had an average of 8.5 per cent cash in April, but this rose to 9.1 per cent as at the end of July.

The most defensive sector – IMA Mixed Investment 0-35 per cent Shares – saw average cash levels rise to almost 14.3 per cent compared with the April level of 11 per cent. The IMA Mixed Investment 20-60 per cent Shares sector has stayed at its average of 12 per cent.

Multi-manager duo Gary Potter and Rob Burdett raised cash and cash-like assets in their £109.1m Equity Managed fund from 10.1 per cent in April to 14.6 per cent by the end of July, Morningstar said.

“Until we have more visibility on the actions of the central banks, we are happy to take a little risk off the table by reducing our portfolio weightings in our higher beta holdings [or holdings that are more sensitive to market movements],” Mr Potter said.

“We are generally optimistic that these issues can be resolved over the longer term but are happy to hold a little more cash in the meantime until we are convinced Europe in particular has turned a corner.”

Another example of a fund which maintains strong cash weighting is Iain Stewart’s £2.8bn Newton Balanced fund, which had 16.1 per cent cash and cash-like exposure at the end of July, Morningstar said.