This was highlighted by the fact average cash balances fell from 4.7% in October to 4.4% in November, the lowest level since October 2013.
However, after cutting their weighting in cash from 9% in June to 6.99% in September, over the last three months wealth managers in the Trustee MPI low-risk mandates have raised cash levels again, with the current percentage standing at 7.29%.
Just because cash levels have increased in the last quarter, it does not mean these wealth managers have necessarily become more cautious.
This is because at the same time the allocation to fixed income fell quarter-on-quarter (from 47.9% to 43.03%), while the use of equities jumped from 27.53% to 29.61%.
Cautious optimism
Ben Kumar, an investment manager at Seven Investment Management (7IM), says portfolio positioning is currently a matter of carefully calibrating between supportive economic conditions on the one hand, and demanding asset cautions, strong market momentum and “extraordinarily low” equity volatility on the other.
“We don’t yet see widespread characteristics that might be consistent with a major market top,” he says. “This suggests it’s too early to retreat to safe havens alone. Instead, we aim to strike a slightly cautious stance, preparing for some volatility but respecting the market’s strong current momentum.”
As a result, while 7IM remains underweight in equities and bonds and overweight in gold and alternatives, it has been making shifts.
In terms of its equity exposure, Kumar says it has moved some European equity positions into UK equities, while it has also cut back some of its gold holdings across portfolios in order to fund the UK equity addition.
“Despite trimming our gold exposure, we remain cautious and are still running at relatively high levels, at about 6%,” he says.
“Increasing our UK equity exposure means that in the event of a broad market correction, the FTSE 100 should outperform European equity, due to the large, global and defensive nature of the companies in the FTSE 100.”
This is because Kumar says the FTSE 100 is the only equity market that has fallen since September, with no real shift in earnings outlook.
Article continues on the next page…
