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BLOG: Fund bosses fleeing the ship?

Kit Klarenberg
Written By:
Kit Klarenberg

In February, the FTSE 100 reached a new zenith, scaling heights unseen since 1999. However, despite reassurances from many analysts that the index could maintain its clamber, the record high appears to have induced anxiety in UK funds.

Fund bosses took £1bn out of UK companies in the first two months of this year, opting to hold their wealth as cash instead – and more withdrawals could be on the cards.

For instance, Mike Felton, manager of M&G UK Growth, now holds 6 per cent in his £775m fund as cash, and intends to increase this to 9 per cent in the near future.

“Cash is an under-appreciated option, especially when markets have escalated,” Felton says. “It gives you the flexibility to invest again when prices fall back a bit. If you can still see value in the stock market, you stay in it. But we are struggling to see it right now.”

Felton believes that the stock market will stutter and fall again soon, and is concerned about developments in the US and Europe over the coming year. In the case of the former, interest rates are almost certain to be increased as President Obama’s monetary stimulus package has reached its end; in the case of the latter, the ongoing Ukraine crisis and the increasingly likely prospect of a Greek Euro exit pose significant challenges to future Eurozone stability. These not only have potentially calamitous implications for the international markets, but also FTSE performance.

However, Tom Becket, chief investment officer at Psigma Investment Management, urges savers to remain calm, and not be “panicked” by the actions of UK fund bosses. “On the contrary,” Becket believes, “they should cash in.”

“So far this year, stock markets have already made the amount we hoped they would over the entire year. The FTSE is up 6 per cent, Japan 9 per cent and Europe 8 per cent. It makes sense for investors to take some of their profits and put them somewhere for a rainy day.

Another advantage to cashing out is that as UK inflation inches towards absolute zero, the value of money won’t dissolve if it’s held as cash – but, of course, cash does not earn investors more money, either.