Fund managers have ramped up their cash exposure to the highest level since the collapse of Lehman Brothers, according to Bank of America Merrill Lynch (Baml).
Baml’s latest fund manager survey found the average cash weighting among managers around the world had risen significantly to 5.5 per cent.
This was the highest level recorded since December 2008, and prior to that November 2001 – in both instances markets were in the throes of major downturns.
The survey also found the proportion of investors taking out some sort of “protection” against an equity market fall in the next three months had risen to its highest level since February 2008.
However, Baml said the high cash level should be interpreted as a “buy signal”, given the rest of the survey showed the current market situation was “a complete contrast to 2008”.
Several multi-asset managers have told Investment Adviser in recent months about their moves to raise cash by taking profits from equities, which had a strong start to the year.
These include Premier Asset Management’s David Hambidge, OCM Wealth Management’s Jason Stather-Lodge – who upped cash to 38 per cent in one of his portfolios – and Octopus’s Oliver Wallin.
Earlier this year Mr Wallin discarded some equities for cash on the view much of 2015’s market gains had already been made.
The move to cash is also being undertaken by single asset managers, with several – including MFS’s emerging market debt manager Matthew Ryan – citing the desire for a cash reserve.
John Ventre, head of multi-manager at Old Mutual Global Investors, said last week his funds were “carrying quite a bit of cash for us”.
“We don’t like holding cash as I prefer to be fully invested, but we have as much as 4-5 per cent [in cash] in most of our portfolios,” he said.
The manager said part of the reason related to his bearishness on bonds, an area he is underweight. He acknowledged being underweight bonds – and usually as a result overweight cash – was a consensus trade, but “this time the consensus might be right”.
Mr Ventre added that volatility was likely to rise when the US and the UK raised interest rates and he wanted to buy into such a market.
“That cash could come in handy as we get some return of volatility,” he said.
“When people realise [central] banks are not going to keep money free forever, which is good news as it shows economies are on the mend, I don’t think it will be treated as positive.
“That dip is for buying, so we want to have some fire power to do that.”
But one wealth manager that has moved against the trend highlighted by Baml is Investec Wealth & Investment, which has reduced its cash weightings by 2 percentage points across its portfolios.
Chief investment officer Chris Hills said the move was an attempt to “take advantage of the current volatility to add to equity exposure”, because the firm had a positive outlook on stockmarkets on a 12- to 18-month time horizon.
Mr Hills said the cash had been entirely invested in European equities, given his view that there were “no significant signs of contagion”, even in the event of Greece leaving the eurozone.
In spite of the higher cash levels, the Baml paper showed Investec was not the only firm to buy into equities, as the number of managers with a net overweight allocation to the asset class rose to 42 per cent from 38 per cent in its June survey.
Instead, it seems investors have been selling out of bonds and commodities as both those asset classes saw a fall in the number of managers adopting an overweight position.
