Criticism has been aimed at fund managers who do not take on enough risk in their portfolios, despite fears about the impact of Brexit haunting investment markets.
Yesterday (29 March) Prime Minister Theresa May signed the letter which officially started the two-year process for the UK to leave the European Union.
Many investment veterans expect markets to be wobbly as Brexit negotiations begin, and research from Hargreaves Lansdown found savers had been piling into cash, with money held in cash accounts rising to £176bn today from £163bn in May last year.
But Stephen Jones, the chief investment officer at Kames Capital, has warned the biggest risk facing investors is playing it safe by holding too much cash in their portfolios.
This comes as Neil Woodford recently criticised the asset management industry for becoming more risk-averse.
Mr Jones, who oversees fixed income, property, equity and multi-asset funds, said: “The biggest risk right now is that investors over-worry about disruptive events or financial crises that are unlikely to happen.”
Cash, he said, is a “wasting asset” against a backdrop that is seeing higher growth and inflation.
Even if the so-called “black swan event” did occur, the investment chief was confident the financial authorities would launch a range of counter-measures to buttress economies, markets and investors.
“You see it again and again in the UK when we get ourselves into the most amazing pickles but the institutions of government step in and the machine cranks up and gets us through.”
However, other investment professionals have argued that increasing the cash weighting in times of uncertainty is a wise move.
Ben Kumar, investment manager at Seven Investment Management, said he agreed that holding too much cash is a huge risk for investors, adding: “Telling investors to go to cash is as risky as telling them to put their money in a single market.”
He said 7IM portfolios are currently slightly above the strategic weight in cash, as part of a tactical move, which has largely come from cutting back on low yielding, high quality government bonds, rather than equities.
But Mr Kumar stressed that not taking on enough risk to meet return expectations has very serious consequences, particularly when the end investor is trying to plan for their future.
James de Bunsen, who is lead manager of the £150m Henderson Multi-Manager Absolute Return fund, said he recently increased the cash weighting in his fund, but added: “This was not a wholesale heroic shift based on us thinking the world was going to end.
“It’s about taking profits from holdings that have done really well,” he said, pointing out that he had replaced some of his equity exposure with cash.
“Things don’t go up forever and my funds are focused on preserving capital, so what little amount I had in equity I decided to dial down a little bit.”
