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Cash rules the roost

Fund managers don’t appear to be particularly worried by elevated company valuations or renewed nerves over the economic backdrop. Last month’s Bank of America industry survey found average cash levels had crept up during the summer – but only slightly.

The typical fund held 4.2 per cent in cash as of August, according to BofA. That’s the highest level this year, but still well below the 5-6 per cent mark seen for most of 2020.

Many wealth managers, tasked with running balanced portfolios, are more cautious. Our asset allocation database shows cash weightings rising more notably this summer. And while they’re still a relatively small part of portfolios overall, some fund selectors are giving further thought to the issue.

Rathbones head of multi-asset investments David Coombs has held elevated amounts of cash on more than one occasion in recent years. His portfolios have also tended to use put options as another form of protection.

Of late, however, cash has trumped even this latter option. Coombs notes that put options are based on indices rather than highly valued companies in particular. He also points to the fact that a rise in the Vix index has increased the cost of these options of late. As a result, Rathbones’ multi-asset team has “been adding only to cash in recent months”.

It's not as if every single defensive option is redundant: Coombs does also own short-dated government debt alongside this position, as part of a “high(ish) growth and high liquidity” strategy. But for certain buyers, cash really is king at the moment.