Investors shouldn’t overweight cash amid worries about disruption counsels fund manager Kames

29th March 2017

The biggest risk facing investors is being too cautious in overweighting cash in their portfolios due to fear of disruptive events says Stephen Jones, chief investment officer at Kames Capital.

Jones, who oversees a range of fixed income, property, equity and multi-asset funds at Kames, says investors risk forgoing attractive investment opportunities by overweighting cash in an environment that is not only more robust than feared, but underpinned by pragmatic central bank support.

He says: “The biggest risk right now is that investors over-worry about disruptive events or financial crises that are unlikely to happen and play it too safe in their asset allocation,” he says. “Cash is a wasting asset against a backdrop that is both higher growth and higher inflation. Yes, the cycle might be getting a bit long in the tooth now, but it has further to run and investors need to think about allocating to risk assets that can generate a better return.”

Jones, who favours equities, high yield bonds and relative value plays over “ultra-defensive type assets”, says investors who fear taking more risk should take comfort from the support markets and economies continue to receive from the majority of central banks and governments globally.

“We are only now beginning to see interest rate rises from one central bank; the others are happy to keep the accelerator pressed as near to the floor as they dare, certainly for the next couple of quarters,” he says. “Let’s not forget rate rises are confirmation that things are getting better, and we do not expect the US economy to miss a beat in the face of those rate rises.”

Even if a black swan event did occur, Jones says there is little chance – or evidence – the relevant financial authorities would not launch a range of countermeasures to buttress economies, markets and ultimately investors.

“Strong democracies have developed robust institutions that moderate and implement policies that get through crises,” he says. “You see it again and again in the UK when we get ourselves into the most amazing pickles but the institutions of government step in and the machine cranks up and gets us through. There is pragmatic application of policy. And we shouldn’t underestimate that.”

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