5 Top Rated Defensive Funds with Big Cash Allocations

Funds with big cash stakes can lag behind their peers in stock market rallies, but can do wonders in a downturn

Emma Wall 4 March, 2015 | 3:32PM
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The FTSE 100 may have reached an all-time high last week, but clever investors should have defensive funds in their portfolio so that they can make gains in both bull and bear markets.

Funds with big cash stakes can lag behind their peers in stock market rallies, but can do wonders in a downturn. As well as the defensive buffer cash provides, these cautious fund managers are often more selective about the equities they do hold.

Sebastian Lyon of Troy Asset Management runs the Gold Rated Personal Assets Trust (PNL), and has recently been selling off equities in favour of defensive holdings cash, gilts and gold.

“The current stock market environment reminds me of 2000, right before the crash,” said Lyon.

“I am naturally cautious and while we might be calling the market correction a little early I would rather conserve investors’ cash than lose it.”

Lyon adopted a similar stance before the global recession, introducing gold to the portfolio as a defensive hedge, and when the FTSE All Share fell significantly in 2009, Personal Assets Trust dipped – but lost a fraction of the value and quickly recovered.

It is a process that Personal Asset’s previous fund manager Ian Rusholme also followed – he took the trust to 100% cash in 2007.

Schroders multi-asset fund manager Marcus Brookes is similarly bearish about the prospects for global stock markets – and the bond markets as well.

Brookes’ MM Diversity Fund has around a 40% allocation in cash to reflect this.

“Right now cash is safer for capital preservation than bonds,” said Brookes.

“We are negative on corporate debt, government debt, property and US equities. We are positive on Japanese and European equities, but cash is king.”

Lyon says explained cash is an active holding as it lends your portfolio protection from a falling stock market – and gives you liquidity to be able to act quickly when markets look attractive again.

“We are currently sitting on cash, but we are not being idle. We are analysing companies that at the right price we would want to add to the portfolio. After the market correction our cash allocation allows us to act quickly to pick up these equities for investors,” he said.

There are several other fund managers choosing to allocate large portions of their portfolios to cash. Henderson Cautious Managed has a 17% cash allocation, as does Axa Framlington Managed Balanced.

Investec fund manager Alastair Mundy has upped the cash allocation in his Cautious Managed fund to 28%.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
AXA Framlington Glbl Sust Mgd R GBP Inc335.00 GBP-0.33Rating
Janus Henderson Cautious Mgd A Acc301.90 GBP-0.17Rating
Ninety One Global Income Opports A Acc391.08 GBP0.13Rating
Personal Assets Ord487.50 GBX0.52Rating
Schroder MM Diversity A Acc1.39 GBP0.07Rating

About Author

Emma Wall  is former Senior International Editor for Morningstar

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