The amount of cash in Seven Investment Management’s discretionary portfolios has peaked since the Brexit vote, as the firm looks to protect investments from the political turmoil.
In the 7IM Balanced fund, the cash weighting currently sits at 12 per cent, the highest it has been since May last year when it stood at 12.5 per cent.
The discretionary fund manager said it is holding a lot of cash as it waits for better investment opportunities elsewhere, particularly as next week’s general election could shake-up the markets.
There have only been two other occasions when the amount of cash in 7IM’s fund exceeded the current level, reaching 14.5 per cent in August 2015 when China devalued its currency, and 13.5 per cent during the 2008 financial crisis.
But as inflation starts to bite, there is wariness that cash could act as a drag on investments.
Geopolitical concerns in the UK and US have prompted 7IM to keep its funds firmly underweight UK and US equities as it sees better value in other markets.
Alex Scott, deputy chief investment officer at 7IM, said: “We see plenty of flashing amber signals for the UK economy, and risks ahead as Brexit negotiations get underway in earnest.”
But he said UK shares have continued to rise, helped by their high exposure to overseas assets.
“Without a repeat of last year’s boost to foreign profits from the fall in sterling and with uncertainty ahead for domestic profits, we are worried that UK equity valuations don’t fully price in the risks.”
Meanwhile, discretionary firm Signia Wealth now has a cash weighting of up to 14 per cent in its balanced portfolio compared to its usual level of around 5 per cent.
Etienne de Merlis, chief investment officer at Signia, told FTAdviser his portfolio is holding a lot of cash because they are investing heavily in derivatives, with around 25 per cent of the balanced portfolio exposed to derivatives.
Greg Malone, head of wealth management at Signia, said the team has been focused on buying uncorrelated sources of return, which he said is particularly important in a tough market conditions.
Ryan Hughes, head of fund selection at AJ Bell, said: “There seems to be an increased number of investors upping cash levels in anticipation of a move into a potentially unstable period.”
He said this level of nervousness is understandable now the UK election outcome looks less clear cut, and with heightened geopolitical tensions around the world.
“After such a long period of equity strength, the opportunity for some to lock in these gains would seem prudent, particularly with the uncertainty that Brexit negotiations will start to bring over the summer months.
“The move to cash also reflects the perceived expensive nature of government bonds that would normally have been seen as a safe defensive play.”
