As markets pull back, Rebecca Jones asks three advisers whether it is time to take some bets off the table and stash some cash instead.
Darryn Lake, Director, JLT Employee Benefits
We are very much on the anti-cash strategy; we see it as a last resort to avoid volatility. The returns available on cash, when you have inflation running at around 2.7%, are negative.
Even over the longer term, the maximum you are going to receive is 2% – even more likely, 1% – so you are still negative in real terms. You really have to believe Armageddon is ahead for cash to be an option.
We prefer absolute return bonds and are very much pro equity but, of course, you have to take your client’s risk profile into account with the latter. We also like the absolute return fund space, though you do have to be selective about which funds you choose. We think those funds looking to provide a cash plus return are very much a better home than cash itself in this environment.
As markets pull back, is it time to raise cash allocations?
Following Bernanke’s statement that the liquidity tap will be turned off, there are concerns that equity markets cannot be supported. We do not see equity markets as being overvalued; balance sheets of companies are still very good and we have small shoots of growth around the world, which we expect to continue.
The message is that quantitative easing will be reduced rather than turned off completely so we certainly do not believe there is an anti-equity story there at the moment.
I can see that one might want a bit of protection but you need to look at the relative returns that are available from a cash strategy. We do not believe it is Armageddon and we think there are better returns available from absolute return offerings. These will give you protection and better returns if that positive side does play out.
Alan Stokes, Director, Brooks Macdonald
In April, we decided we would start raising a bit of cash. We had had a damn good run in our medium- to high-risk portfolio and went from 1% to 6% cash. In our high risk portfolio, we went from 1% to 8%.
We were getting a little bit twitchy about markets coming off and they have all come tumbling back since then.
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