“Our view is simple: I am not paid to own cash,” said Will Low, head of global equity at Nikko Asset Management. “Our job is to find the best ideas in global equities. While flow-related activities such as redemptions may move it around a bit, our cash typically ranges between 1-2%.
“There is asymmetric risk in owning lots of cash: in a falling market you will get a grudging ‘well done’; in a rising market you will never be forgiven.”
While Standard Life Investments’ head of fund of funds Bambos Hambi does not find cash quite so abhorrent, he is still somewhat averse to it.
“We are 2% underweight cash in our portfolios,” he expanded. “Cash is yielding almost zero at the moment, and while this bull-run has been going on for a number of years now and people are starting to batten down the hatches a little, we are still seeing opportunities in Japanese and European equities – mainly in small-caps – and UK commercial property.
“Large-caps are reasonably valued but the growth is not coming through, while mid-caps have good growth but valuations are quite rich, so the sweet spot seems to be smaller companies, where there are good growth rates and reasonable valuations.”
In this type of market environment, managers need to pick the right ground between the continuing to generate returns and not exposing themselves to the heightened risk of a fall.
On that point, at least, there seems to be widespread agreement; but how one achieves it is a whole other game.
