Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Innovation Investing Conference
    • 2022 Defined Contribution East Conference
    • 2022 ESG Investing Conference
    • 2022 DC Investment Lineup Conference
    • 2022 Alternatives Investing Conference
Breadcrumb
  1. Home
  2. INVESTING & PORTFOLIO STRATEGIES
April 06, 2015 01:00 AM

Some investors increasing cash in portfolios

Increases offer flexibility for possible correction

Sophie Baker
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Simon Dawson/Bloomberg
    Lucy Macdonald said her cash holdings are at the 'high end of the normal range.'

    Cash is creeping higher in the equity and multiasset portfolios of global money managers.

    A number of money managers are holding up to 20% cash in some cases, in portfolios that usually would be holding far less or are fully invested.

    “I have heard anecdotally from a number of managers that they are allocating some assets to cash where they have that flexibility,” said Phil Edwards, European director of strategic research at Mercer Ltd. in Bristol, England. “Those allocating a bit more to cash are doing so perhaps in preparation for a correction, or as they may be struggling to find opportunities that are reasonably priced in current market conditions.”

    Some equity markets are off to a strong start. The U.K. FTSE 100 returned 4.35% through March 31, vs. -1.16% for the first quarter of 2014, while eurozone quantitative easing has pushed risk assets in the region up. The MSCI Europe index gained 16.76% through March 31, vs. 2.27% for the same period in 2014.

    The U.S. is more muted, with the Russell 3000 up 1.8%, vs. 1.97% a year earlier.

    The potential for a market correction and the return of volatility are high on the list of factors for moving assets into cash.

    Allianz Global Investors officials late last year changed their thinking about the amount of cash managers can hold in portfolios, as a way of enhancing flexibility throughout its strategies.

    Higher cash levels

    Lucy Macdonald, an AGI managing director and chief investment officer-global equities, London, said she is holding cash at the “high end of the normal range,” but did not disclose that range.

    Currency markets have experienced more volatility than equity markets, besides a few spikes. “But it wouldn't be surprising if we get more volatility in (markets other than currency) throughout this year as the (Federal Reserve) begins raising interest rates,” Ms. Macdonald said.

    “Having more cash, more liquidity, at the moment might not be a bad idea. Then being ready to take the opportunity and go into investments when we can. That is how Andreas Utermann (global CIO and co-head of AGI) is thinking. There is the potential for a correction in the equity markets — it is about having some firepower and being brave when the opportunity comes.”

    AGI runs €143 billion ($154.69 billion) in equities globally, and Ms. Macdonald manages the £3.1 billion ($4.6 billion) Allianz Global High Equity Alpha strategy.

    Executives at fiduciary manager P-Solve LLC, part of River & Mercantile Group PLC, also have seen a move within the single-asset strategies of the underlying managers within P-Solve's portfolios. Tamsin Evans, London-based managing director, multiasset, said she likes managers to be fully invested, but is happy for cash holdings of up to 5% of assets to be used for “opportunistic purchases. We are seeing that at the moment — even managers that would usually be 100% invested are maybe 95% invested at the moment.”

    Within P-Solve's fiduciary management strategies, about 80% is held in risk assets such as equities, with the remainder in sovereign bonds, cash and gilts. Cash is at 2%. Underlying managers add a further 2.5%. “That is probably the highest we have ever seen it. Equity managers are holding small cash positions in this case,” Ms. Evans said. Part of that is being more defensive in the short term, waiting for opportunities to arise, she said. P-Solve runs £6.9 billion in fiduciary management assets.

    Nowhere better

    Another issue is whether there is anywhere better to invest within equities and other asset classes.

    Alexis Mathieu, manager of the SWMC Emerging European fund at $2 billion boutique money manager S. W. Mitchell Capital LLP, London, is holding about 20% in cash right now. He was 90% to 92% invested through the second half of 2014.

    “We remain cautious and would like to keep cash as a cushion and await the right opportunities to deploy it,” Mr. Mathieu said. Short-term political uncertainty is holding him back from increasing exposure.

    For multiasset strategies, cash is the place to be as an alternative to other assets.

    “Cash today for me is a good idea for a number of reasons,” said David Vickers, London-based senior portfolio manager, Russell Investments, which has $275.1 billion under management. “The cost of carry is relatively low. Cash rates in Europe may be low and even negative, but looking at the opportunity sets that exist elsewhere, our return expectations are pretty low.”

    Within the portfolios Mr. Vickers runs, including the firm's flagship $2.2 billion Multi-Asset Growth Strategy, “we have approximately 8% cash. As the opportunity cost of holding cash is very low, it provides wonderful optionality.” He said that, early in the market cycle when return expectations are high, the cash holdings typically would be close to zero. However, that depends on markets and opportunities.

    The current level could increase. “I cannot help thinking that we are six or seven years into a bull market. We are still in an environment of monetary experimentation, secularly low growth, and rates are set to rise,” said Mr. Vickers. “And these are the things that I know about. For me, looking toward preserving wealth and protection gains made at this stage in the cycle makes sense.”

    Johanna Kyrklund, head of multiasset investments at Schroder Investment Management Ltd., London, said the firm, which runs £72 billion in multiasset strategies, has been holding “higher cash balances as we've gradually taken profits in credit and emerging debt as well as avoiding commodities.” Executives have maintained equity weightings. She did not disclose the ranges or current weightings.

    “All asset prices have been pushed up by (quantitative easing) in recent years, but volatility could pick up as the Fed starts to raise rates.”

    Pension fund portfolios

    Pension fund executives in the U.S., U.K. and Europe who oversee internally managed equity portfolio say they are fully invested, or declined to comment as they do not want to be seen as calling the markets.

    “At the investor level, most are reluctant to make tactical shifts of that sort between equities and cash,” said Mercer's Mr. Edwards. “Most pension trustees don't see themselves as able to make calls on the markets.”

    A spokesman for APG Asset Management, which has €400 billion in assets under management, including those of the €344 billion Stichting Pensioenfonds ABP, Heerlen, Netherlands, said the manager is fully invested in the equity portfolio, but has a tactical asset allocation policy “as a form of overlay to be able to make use of opportunities.”

    Similarly, Norges Bank Investment Management, manager of the 6.6 trillion Norwegian kroner ($820 billion) Government Pension Fund Global, Oslo, is not holding back cash, but has a rebalancing rule that allows the manager to “buy shares after prices have fallen,” said a spokeswoman. “As a long-term owner with no short-term liquidity constraints, we are well positioned to increase risk when others must decrease it.”

    Related Articles
    Corporations weigh derisking vs. re-risking
    Long duration displaces high-yield bonds as top performers for year
    Currency hedging up with the dollar
    Strong dollar highlights desire for currency hedging
    Sterling-, euro-denominated U.S. equity funds struggle to top S&P 500 index
    SEC to propose that mutual funds disclose risk of rate rise
    Volatility fears push nervous investors toward puts
    Nervous managers boosting cash over skittish global markets
    Recommended for You
    More funds testing water on crypto-related assets
    More funds testing water on crypto-related assets
    Money managers eager to make leap to opportunity zone investing
    Money managers eager to make leap to opportunity zone investing
    Index investing: Not as passive as you might think
    Index investing: Not as passive as you might think
    OCIO, Anchor in Rough Seas
    Sponsored Content: OCIO, Anchor in Rough Seas

    Reader Poll

    May 23, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Crossroads: Politics, Inflation, & Bonds
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Q2 2022 Credit Outlook: Carry On
    Leverage does not equal risk
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    May 23, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Innovation Investing Conference
      • 2022 Defined Contribution East Conference
      • 2022 ESG Investing Conference
      • 2022 DC Investment Lineup Conference
      • 2022 Alternatives Investing Conference