In explaining the move, the firm said it regards moving to cash as an “active investment decision” and one that it does not take lightly. Which is as it should be; all investment decisions should be undertaken with due care and consideration. But, the need to classify the move to cash as an active decision stuck out a little.
Wealth managers have an increasingly strong love/hate relationship with cash. At best it yields nothing, making it impossible to argue successfully that a high cash balance should form a long term part of one’s asset allocation. Likewise, the wealth management community is under ever increasing pressure to justify the fees they charge, which makes sitting on cash an uncomfortable position as it is often glibly seen by cost-conscious clients as ‘doing nothing’.
On the other hand, while it may yield nothing, traditional defensive assets in general and sovereign bonds in particular, yield almost as little (making the opportunity cost of holding cash much lower) and are also, arguably, not nearly as defensive as they once were.
As JPM global market strategist, David Stubbs, pointed out in a recent note, the traditional negative correlation between bonds and risk assets appears less reliable than it once did.
“The bottom line is that safety, for investors, now has many faces—and the typical portfolio is going to need multiple anchors,” he said. For Stubbs, these multiple anchors can take the form not only of higher yielding developed market government bonds, absolute return fixed income funds, market neutral equity funds, liquid alternatives and, holding more cash.
This is similar to the view of Dart Capital’s associate director of research, Alex George, who said its portfolios currently have around 2% in cash. But, it also has 6% in short duration government bonds and just over 6% in short duration investment grade bonds. And, while he does see the IG portion as somewhat different given its yield characteristics, he said both it and the government bond allocation serve a similar defensive role in the portfolio.
It has also added to some if its favoured equity neutral and long/short funds, he said.
