The Rathbones multi-asset team holds a hefty £222m in cash across its four funds, making up as much as 23 per cent of one of the portfolios.
As at January 31, cash and short-dated bonds accounted for more than 23 per cent of the £665m Rathbone Strategic Growth Portfolio and 21 per cent of the £280m Rathbone Total Return Portfolio.
Although featuring less heavily in the other two funds — the Enhanced Growth Portfolio and the Strategic Income Portfolio — these mandates still held 6 and 7 per cent in cash respectively.
Will McIntosh-Whyte, who manages the range alongside the head of multi-asset investments David Coombs, told FTAdviser the cash holding was primarily the result of an unattractive bond market.
He said: “We do not think bonds look like fantastic value at the moment. There’s nearly always a place for bonds because they give you a negative correlation to equities, but right now you’re paying quite a lot and taking a lot of risk for a low yield.
“In terms of government bonds, I don’t think the longer-term bonds are paying enough to be worth the risk inflation may go up and beat the yield they are currently paying.”
Mr McIntosh-Whyte said it was true a 10-year bond would go up in value if “the world goes to hell”, but said he was not being paid enough from the investment to deal with the unknown risks of holding it and would rather hold cash.
Bonds, and particularly government bonds, are usually a lower risk option in a multi-asset portfolio and therefore play the same defensive role as cash.
He felt the same way about corporate bonds. He said: “You’re not getting much extra yield on taking a lot of extra risk with corporate bonds.
“They’re riskier because they’re not as liquid and the company could go bust. In fact, I would rather buy the equity of the company than take on the debt because I can get decent returns and I know the return I’m going to get.”
The cash pile in the funds was also a result of the managers’ use of put options, Mr McIntosh-Whyte said.
Put options are an insurance tool which give managers the right to sell their stocks at a specified price (within an agreed timeframe), so can protect part of a portfolio against falling markets.
When using put options, the manager can protect the same proportion of their portfolio for less money than when using a physical defensive asset such as gold, meaning the portfolio has more cash left over.
The downside is that unlike a physical asset, the cash spent on a put option is essentially worthless if markets remain stable or go up.
He added: “I do not need to allocate so much capital to get that protection, so that excess is still in the fund.”
imogen.tew@ft.com
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