Investors bet on a stock market crash

As global stocks hit new records, fund managers have increased their cash reserves to safeguard themselves against a market crash.

Mixed-asset portfolios can invest anywhere from 40pc to 85pc in stocks. On average, they hold 5pc cash, compared to a 2pc average across all funds according to data compiled and analyzed by FE Fundinfo. Managers who only invest in stocks also take money out of the market.

Mixed-asset managers with higher cash levels are more likely to be prepared for a drop in the value of bonds. These bonds have historically been a safe haven from volatility in stock markets. Managers can take profits and use the cash to buy the dip if the share price falls.

With 21pc cash, the Ninety One Global Multi-Asset Sustainable Growth Fund ranked high.

Manager Michael Spinks stated: “Our concern, however, is that there will be a decline of stocks and bonds when central banks withhold support. This is combined with a growth shock coming from China.

He stated that cash gives him the flexibility to profit from any volatility. The money can be used to buy attractively-priced corporate bonds or emerging market debt.

Other investors question the value of having an active manager hold large amounts of cash. DIY investors can do this for free.

Thomas Becket, of Punter Southall Wealth, said that it was reckless for fund managers not to keep so much of their clients’ money in cash. He said that DIY investors expect them to invest their money.

Managers should not be charged if they believe there aren’t good investment opportunities. DIY investors can then decide whether they disagree with the manager’s view or keep their money in cash accounts.

Mixed-asset funds can be used to make strategic cash decisions. Some stock market funds also have high cash positions.

Around 14 per cent of Gresham House UK Multi Cap Income fund’s assets were in cash. The co-manager Ken Wotton said that this was because the fund was ready to capitalize on a fall in London’s stock market.

He said that volatility was caused by concerns over inflation, disruptions in supply chains and the new Covid version.

Mr Wotton stated that the cash would be used for stocks with long-term, robust qualities that are often overlooked by the market. He also stated that the fund has received cash inflows from new investors.

Sanford DeLand Free Spirit, which invests in British stocks as well, had 18% cash at the end of October. However, this number fell to 12 per cent this week. Eric Burns, of Sanford DeLand, stated that the fund began to accumulate cash from investors in the summer.

“We sat back in August and July, and let the cash grow.” He said that shares have been becoming more attractive in recent weeks and that dips have been used to replenish existing holdings. “The cash position has fallen from around 18pc peak to 12pc at November’s end,” he said.

Rob Burgeman, wealth manager Brewin Dolphin, warned DIY investors to not follow fund managers’ lead by waiting for a dip and taking profits.

Regular investors must believe that things will get worse for them if they want to sell their stocks and make a move to cash. He said that he doesn’t believe this will be true. Markets have been volatile this week. Travel companies were among the worst fallers, but shares in easyJet rose 5 per cent between Monday and Thursday. We don’t think there will be another major disaster.

Laith Khalaf, broker AJ Bell, said that DIY investors should sell bonds if they expect a crash due to rising interest rates.

He said that bonds are safe havens and can be a good option if there is concern about global growth. “Investors might consider selling their long-dated government bonds to buy strategic bonds’ or corporate bond funds. These would be less affected by rate increases.

Mr Khalaf referred to the Artemis Strategic Bond and Fidelity Strategic Bond funds. They have both returned 19% and 22 per cent respectively over five years.

He said that the downside to these options is that they won’t offer as much protection in an economic slowdown.


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