Cash gets the upper hand as investors go cold on equities by Finance News Bulletin

Published: 13/12/07

All occasions are London occasion Search News in the FTcom siteSearchSearch speech marks in the FTcom sitespeech marksYOUR MONEY Your investmentsBreadcrumb trail navigation:FT Home > Your money > Your investmentsServicesThe customary end of year evenhandedness rally has failed to materialise as many had hoped, and, with worries about business UK in 2008, investors are taking refuge in cashThis week, Schroders supposed that it was moving its home view against equities

The decision, reached by its internal asset allocation group, has been made in the expectation that the UK is entering a hold up, which Keith Wade, Schroders chief economist, argues is the worst occasion to buy equities“We have been overweight in equities but we are now touching our house allocations into cash,” says WadeAccording to Schroders, there are four phases of the cycle: recovery, growth, slowdown and recessionWade believes the UK has entered the slowdown phase, which is the only time in the cycle when equities seem a poor investment owing to the view of negative returns and increased volatility

This slowdown phase is likely to continue until halfway through 2008, according to Wade, when he envisages changing the weighting to the benefit class againSchroders is not alone in battening down the hatches in case of a tempest in the markets early next year Investors are also touching towards cash positions, according to Tim Cockerill of Rowan Asset ManagementThe latest store of England survey shows that more and more people are piling cash into money savings, while the Building Society Association reported that its members had paying attention record savings of more than £3bn in October

“We’re seeing customers become more cautious and less willing to put money into the marketplace,” says Cockerill “We all know there are concerns of a slowdown and there is no damage in keeping money in a good, old-fashioned building society”Cockerill adds that there have also been repercussions from the recent malaise in the commercial possessions market, which was an asset group of students that many retail investors saw as safe Now, there is a flight to genuinely secure money deposits

As well as the many high street options, such as far above the ground yielding cash accounts and cash bonds, there has also been a move towards cash fundsNorwich Union this week revealed tactics for a new cash finance aimed at providing income with a high level of capital security It will invest in short-term money and near-cash deposits, making it an alternative to simple bank accounts with its aim of consistent returns in excess of the Bank of England bottom rate, before chargesMoney market funds have never been more popular

Funds under management in the division totalled a record £46bn in October, according to the asset Management Association, after seeing net retail sales of £454m during the monthMany fund managers are also reporting an greater than before exposure to suspicious positions, either raising cash allocations where they can or else touching to defensive stocks such as pharmaceutical and utility stocks in the hope that trading conditions are more likely to worsen in the beginning of 2008 than improve

Most economists are predicting some kind of slowdown, although opinion varies as to harshness and lengthLike Schroders, Standard Life has also been reducing its equity weightings in recent weeks, in-between its allocations between money positions and bonds“We see now as the right occasion to reduce the risk in our balanced portfolios,” says Richard Batty, global strategist at Standard existence “We have concerns over US profit enlargement, and see the equity markets as pretty well correlated across the world

crazy says that present Libor rates – the level at which banks lend to each other – are so high that UK money looks very attractive, with the addition of a confidence of income that equities struggle to matchOn Wednesday, the one- month rate at which the banks lend to each other was 6749 per cent, its highest since the end of 1998, while the three-month speed rose to 6649 per cent

He says that bonds are also a high-quality prospect, with the expectation that interest tax will come down relatively quickly “Bonds are perhaps the most excellent way to play an economic slowdown,” he saysRichard Cookson, worldwide head of asset allocation at HSBC, says that investors should not sell equity holdings at the instant but should be nervous about taking novel investments in the marketUnlike crazy, Cookson sees government bonds as almost “unbuyable” on the prices and returns being asked, while he believes money is too simple an option for an active fund manager

“Cash is, at this moment, a good temporary option but as a long-term asset strategy it is not really viable,” Cookson saysHe favours a counter-intuitive investment in business credit, a sector which has been heavily sold because of the still prevalent worries about the global praise marketsHe says: “High-yield bonds are insanely cheap at the instant – almost at all-time lows, which means it could be worth captivating the risk as these have already priced in a tragedy”He admits, however, that should forecasts of a extensive economic slowdown come true, then business bonds will not be as good a place to spend as government bonds or cash

Batty states: “I can understand you’d be underweight in equities, although you should have a view about getting back into equities in the new day”Gary Potter, head of multi-manager funds at Thames stream, says that it is crucial to buy excellence during this period, whatever asset class the investor choosessure sectors of the equity market will remain under a cloud, such as in the financials sector,” Potter says“Never be frightened to take profit

Equities are the best long-term asset, but there surely are going to be better entry points than now”Copyright The Financial era Limited 2007New redemption fears for possessions funds - Dec-07Savers urged to lock rates before banks react to slash - Dec-07US could be heading for a hold up - Nov-01A build-up of bearish data fuelled fears of a US financial slowdown - Nov-05Bank stocks tumbled around the world - Nov-05Fears outweigh facts next more instability - Aug-18More in this sectionBlogsBrussels BlogCharles PretzlikClive CrookDear LucyEconomists’ ForumEnergy FilterJohn GapperGideon RachmanTech BlogThe Undercover EconomistWestminster BlogWillem Buiter’s MavereconRegional pagesLatin American agendaChinaIndiaBrusselsInteractivePodcastsDebates & pollsAsk the expertMarkets Q&AJobs and classifiedsBusiness for saleContracts & tendersJobs look for Type your search criteria below:* Minimum delay 15 minutesAll era are London timeFT HomeSite mapContact usHelpAdvertise with the FTMedia centreStudent offersFT ConferencesFT SyndicationCorporate subscriptionsFT GroupPartner sites: Chinese FTcomLes EchosFT DeutschlandExpansionInvestors ChronicleExec-Appointmentscom© Copyright The Financial era Ltd 2007

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