Adam Korzekwa adam@korzekwa.
It wasn't long ago when cash was considered to be a drag on returns.
With memories of the 2008-2009 market collapse still fresh in investors' minds, there appears to be a great acceptance of money managers keeping more powder dry. Cash appears to be treated more like an asset class just like stocks and bonds.
We asked three managers who currently see cash as king.
Sentry Select Diversified Total Return (about 43 per cent in cash)
For Andrew McCreath, the days of rocky markets are not over.
With 43 per cent of his Canadian stock fund in cash as well as some short positions, he is taking a defensive stance in current markets.
"We believe the market must discount a lower rate of economic and corporate profit growth that will result from fading fiscal stimulus and not enough job growth," said Mr. McCreath. "So it is not surprising to see the markets pull back."
While he is cautious, he still has exposure to gold and others companies. "When 10-year bonds are 3 per cent, equities are not going to fall out of bed," he suggested.
"And we own gold stocks because clearly gold is in a pretty good environment notwithstanding the correction. With $1,200 (U.S.) per ounce of gold, companies make good money."
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A year ago, Mr. McCreath expected the S&P 500 to trade between 900 and 1,200 points for a prolonged period. "I still believe that is the case," he said.
He needs to see equities pull back a bit more, maybe 5 per cent, before getting into a spending mood. "We are not there yet," he said.
Sprott All-Cap (about 18 per cent)
Jamie Horvat likes to keep more power dry in a directionless market.
The Canadian stock fund is 18 per cent in cash and also 17 per cent in gold bullion which he sees as a "proxy for cash." The fund also has just over 17 per cent in short positions too.
"We continue to see this market as a sideways volatile trading market," said Mr. Horvat, who co-manages the fund with Charles Oliver.
"The S&P 500 has been at 1,400 points and 900 points twice since the dot-com bubble peaked in 1999," he said. "Our view is really that the S&P 500 is fairly valued at 900 to the 950 range, and we'll probably get back to there."
Mr. Horvat said he believes that having a bit of excess cash is seen as positive compared with the period from 1995 to 1999 years and even 2002 "where people were dreaming of a bull market and technology coming back, and they wanted you to be fully invested."
He expects continued volatility and markets heading lower with the S&P/TSX Composite falling to the 10,000-point range. "I continue to believe there is a potential for a double-dip recession," he said. "The rally that we have seen has all been predicated on government stimulus."
HAP Seasonal Rotational exchange traded fund (about 80 per cent in cash)
Don Vialoux has no problems being in cash big time.
He co-manages a Canadian stock ETF that invests in the stock market during periods of seasonal strength. When he got the technical "sell signal" during the fourth week of April this year, the fund wound up with 80 per cent cash.
The exception was five days around U.S. Memorial Day to take advantage of the rising markets that typically happen during that holiday period before returning back to 80 per cent cash again.
But Mr. Vialoux doesn't expect to hang onto all of cash for too long because gold and agriculture stocks are on his radar screen for their periods of seasonal strength this summer. He currently has about 20 per cent already invested in medical device and biotechnology ETFs because their stocks tend to rise in the summer before new products and services are unveiled in a series of conferences.
"Once you get into the favourable period for the markets from October 28 to May 5, then we are fully invested again," he said.
Still, he is a little more cautious about markets because of the looming U.S. mid-term election that adds uncertainty to the stock market. "Historically, markets are not as weak during the May to October period as they are in a mid-term election year."