Fund managers are often criticised for their large cash positions, which can cause investors concerns about a manager's lack of conviction or being too cautious in the market.
In the latest edition of ‘Selector Snapshot’, one selector shares why these allegations are not always true and why investors should take cash holdings with a pinch of salt.
Selector: Claudia Röhring
Company: Lupus alpha (Germany)
No asset class currently looks cheap, so the decision that you need to make is on relative cheapness - where can you find it? In the current environment, investors are looking for strategies that help them diversify their portfolios and stabilise expected returns.
So they turn to alternative risk premia and illiquid assets. Given the current market levels, if you have the chance to be flexible and don't need to be fully invested, I think it is a good time not to be fully invested.
If you are invested in a fund which holds lots of cash, then paying fees for cash is something that you usually don't want. Investors don't want to pay fees for cash, on the other hand they don't want an asset manager to make investments if they are not really convinced.
In certain hedge funds or in certain types of illiquid strategies, these are exactly the times where you would see some managers return money to investors.
That of course doesn't happen in the mutual fund space. As long as it is a temporary decision and the manager has good reasons to do that, I would say it is acceptable.
FX has been extremely challenging and there is hardly any manager around, who has managed to earn money consistently over the course of time. That is very difficult.
Equity market neutral has also very challenging for some managers. Some have done really well, but there are some who have underperformed.