He says: “On Multi Index 3 we took the cash level up by 6%, which is a substantial de-risking of the fund, and there is now more cash across the portfolios than ever before.
“The high-risk fixed income elements of high-yield and emerging market debt have come down, and we have reduced our equity allocation across the board to the lowest level it has ever been.”
The high-yield and EMD trims – 6% and 3.5% down to 4.5% and 3% respectively – mean that Multi Index 3 now contains an unprecedented 15.5% in cash. However, de-risking is not all about paring back investment.
Onuekwusi expanded: “Short-dated corporate bonds has been a gradual increase over time as we have got closer to the Fed lift-off, and are at the highest allocation we have ever had.”
This view translates to a short credit weighting of 6.5% in Multi Index 3 – previously at 5% – with Onuekwusi outlining his intention to redeploy his cash holdings as and when opportunities arise.
“Over the medium-term we still think that the equity bull market will continue and any pullbacks that we see around that Fed risk will be an investment opportunity, and we will use the cash to top up the risk back to previous levels.”
The impending interest rate hike’s impact on the bond space is also playing on Coombs’ mind.
“Most of my cash is aimed at fixed income markets,” he explained. “There is already volatility, which could be exacerbated in the autumn by the market trying to look through the interest rate rises, so there will be an opportunity to spend it.
“I do not see returns that warrant the risk I would be employing, particularly in credit, emerging market debt and high-yield. I am happy to sit on the sidelines and wait for a shake-out, which could happen in the next six to eight weeks if that volatility comes through.”
Other side of the coin
However, if everyone agreed with everyone else then there would not be a market, and for some the idea of holding cash goes against the principles of investment management.
