Managers pick cash over UK plc

Managers pick cash over UK plc

UK fund managers are holding onto cash to avoid buying what they believe are overvalued and overpriced UK equity stocks.

Keith Ashworth-Lord, founder and managing director of Sanford DeLand Asset Management (SDL), and manager of the SDL UK Buffettology Fund, is currently holding 16.87 per cent in cash.

His colleague Rosemary Banyard, who runs the SDL Free Spirit Fund, has 15.7 per cent in cash.

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According to Mr Ashworth-Lord, the high cash holdings are mostly down to investor inflows, rather than the managers making stock decisions to sell, but the reason the holdings have not decreased is because the managers are waiting for the right investment.

He said: "It's not a mark of bearishness", but rather a lack of truly quality companies available in the UK outside of the ones already in the fund. 

He said it was important to keep cash ready to invest in the sort market-leading companies with high long-term growth potential they would want to have in their portfolios.

In fact, he would rather continue to invest in companies he already holds, rather than make new investments "just for the sake of being invested".

Moreover, the managers claimed the sharp rises in the FTSE 100, as well as continuing upward revisions in earnings ratios, might belie the actual quality of many companies listed on the London Stock Exchange.

Mr Ashworth-Lord commented: "It's a fool's errand to forecast markets and invest based on pre-determined criteria. I don't want to invest in any old thing; I want it to be good. 

"I don't want to invest in something that will affect diversification and correlation; I want a company that has an asset or know-how or a product that differentiates itself from the others".

He pointed to Games Workshop as an example, which he said has "captured a piece of the market" and has so far been a stand-out performer.

During October, the stock rose 15 per cent and is now 3.34 per cent of the fund.

Instead of focusing on earnings, the team focuses on companies which have high cashflow, strong balance sheets and managers "who behave like an owner of the business", Ms Banyard, said, adding that SDL was following the theories of investing set out by veteran fund managers such as Warren Buffett of Berkshire Hathaway.

Not all fund managers or analysts believe the UK market is overblown - or at least not in the main.

Mark Preskett, portfolio manager at Morningstar said: "To hold high cash levels like these is a pretty punchy call but you know, this could prove correct. We have been raising cash but this is more a call on the inflated fixed income market than the equity market.