A number of the UK’s most highly rated equity managers across different markets are sitting on up to 20 per cent in cash at present, according to research by FE Trustnet, a tacit view that things will get worse before they get better in global markets.
Apprehension of relatively high valuations and the recent China-led crisis have clearly prompted a number of equity managers in the UK space to hold high levels of cash, giving them the opportunity to pounce on cheaper valuations in the future as well as protect capital until the market takes a clear direction.
This week, equities have been struggling to do just that with a “steady battle of attrition” ongoing, according to IG senior market analyst Chris Beauchamp.
However, for anyone looking to make the most of the current dip in markets – and possible further drops – here are five highly rated funds headed by FE Alpha Managers with at least a 10 per cent cash weighting.
UK - JOHCM UK Opportunities
The £1.5bn JOHCM UK Opportunities fund has one of the highest cash weightings in the IA UK All Companies sector at 13.19 per cent.
John Wood, who has managed the fund since 2005, has periodically increased cash levels and it is not unusual to see such a high weighting in the portfolio.
This has helped in the market weakness of the past six months with the fund sitting in the top quartile of its peer group. It’s also first quartile since launch in November 2005.
Over one, three and five years the fund has is second quartile, although its returns are still ahead of its sector and benchmark.
Performance of fund, sector and index since November 2005
Source: FE Analytics
Wood’s strategy has worked well over the long term, with the manager doing particularly well following market falls. The fund was top decile in 2007’s turbulent market and following year when the market crashed.
The manager also made a positive return in 2011’s European sovereign debt crisis, when most funds suffered significant falls.
JOHCM UK Opportunities has a clean ongoing charges figure (OCF) of 0.81 per cent and charges a performance fee.
Asia Pacific ex Japan – First State Asia Pacific Leaders
This four FE Crown-rated fund, which is headed by FE Alpha Manager Angus Tulloch (pictured) and David Gait, has 9.3 per cent in cash – the most held by the fund in at least three years.
The £7.8bn portfolio has been a persistent favourite in the IA Asia Pacific ex Japan sector, leading its assets reaching the £8.5bn mark earlier in 2015 as investors moved back into Asia. However, its assets have fallen as Asian equities dropped over recent months.
The fund has suffered in the crisis hitting Asian stocks, China in particular, but the focus on quality companies has kept the fund’s performance vastly ahead of its peers and index over the longer term.
Performance of fund, sector and index over 5yrs
Source: FE Analytics
It is also first or second quartile in eight of the past 10 full calendar years.
First State Asia Pacific Leaders has a clean ongoing charges figure of 0.92 per cent.
Emerging markets - Somerset Emerging Markets Dividend Growth
The emerging markets sector has been equally besieged of late and Somerset Emerging Markets Dividend Growth fund manager Edward Lam has responded by holding 14.87 per cent in cash.
Lam takes a bottom-up approach to the emerging market universe, which he filters down to a highly concentrated portfolio of around 40 generally high quality, cash generative stocks that prioritise the juvenile income culture in asset class.
According to FE Analytics, the £931m fund has been a top decile performer in the IA Global Emerging Markets sector since its launch in March 2009 with gains of 22.67 per cent. Its MSCI Emerging Markets benchmark, on the other hand, has lost 6.13 per cent over that time.
Performance of fund sector an index since launch
Source: FE Analytics
Somerset Emerging Markets Dividend Growth has a clean OCF of 1.3 per cent.
Global - GAM Global Diversified
The standout fund in the IA Global sector is the £561m GAM Global Diversified fund, which has 15.13 per cent in cash.
The portfolio has one of the longest standing managers in the Investment Association universe; Andrew C. Green has been running the fund since 1984.
Green is one of the 30 FE Alpha Manager ‘hall of famers’, which highlights those have been the top 10 per cent of managers for risk-adjusted alpha generation, consistence outperformance versus a benchmark and outperformance in both up and down markets in every year since 2009.
The manager has run fund since its launch and over this time GAM Global Diversified has beaten the index fivefold, returning nearly 4,000 per cent.
Performance of fund versus index since Jan 1984
Source: FE Analytics
Top positions currently include Anglo American, Vernalis and BP.
GAM Global Diversified has a clean OCF of 1.11 per cent.