After a dip earlier in the year following political turmoil in Ukraine, global stock markets have rebounded again, with many trading near record highs.

But with few cheaper alternatives, managers told Investment Week they are hiking their cash levels.

James De Bunsen, who runs Henderson’s multi-manager fund range, said he has been raising cash allocations in the group’s higher risk portfolios, after first boosting it to 10% in the Henderson Cautious Managed fund earlier in the year; the Multi-Manager Active and Managed funds now allocate 9% and 7% to cash, respectively.

“We do not really see other opportunities to provide that sort of shock absorber in any other asset class, so cash is the only thing that is reliable,” he said. “If there is a correction of 10% or so, you cannot rely on anything to hold its value, and there will not be many places to hide.

“These figures are relatively high for our funds historically, but valuations are not as attractive as they used to be, and everyone seems to be positioned the same way.”

His concerns are echoed by the CIO of Psigma Investment Management, Thomas Becket, who has been raising “dirty cash” in his portfolios as “protection against a potentially challenging summer”.

He said: “For the first time in my six years as Psigma’s CIO, the creative cogs have ground together, requiring the oil that only a correction in values can bring.

“That is not to say you should sell up and run for the hills, but rather glance through your portfolio, sell anything you do not trust impeccably, and hold a cash buffer.”

The country’s most popular multi-manager, John Chatfield-Roberts, has also increased cash levels across his Jupiter Merlin multi-manager fund range.

Funds in the range have seen a spike in cash holdings the past few months: from 7% to 17% since March in the Conservative portfolio, and from 2.5% in the Growth and Balanced funds to 11.7% and 9.7% respectively by May.

Cash, rather than fixed income, is becoming the norm for funds because of long-running liquidity concerns.

Ian Brady, CIO of OakTree Wealth Management, is particularly concerned about the potential impact a market sell-off would have on “illiquid” bonds.

“Because we have been selling bonds, we actually have a higher than average cash balance at the moment. It depends on the fund, but we have roughly 11%-16% cash, and we have doubled our cash positions in the last month or so,” he said.

Nick Samouilhan, a member of Aviva Investors’ multi-asset team, said he has sold all high yield exposure in the funds and halved corporate bond exposure.

“From a multi-asset perspective, equities are looking a bit expensive, but credit is very expensive, so we wanted to take that exposure out,” he said.

Other multi-asset investors, however, are trying to find ways to avoid a build-up of cash, conscious of the drag this has on returns.

David Coombs, who held as much as 20% in cash in his Rathbone Multi Asset Total Return fund earlier in the year, has recently reinvested around 9% back into the market.

“We are very concerned about a potential correction, so we are going for defensive plays,” the manager said.

“We have been looking at a couple of Special Situations funds, and also took the opportunity to buy into some trusts recently as they started trading at a discount.”

Coombs has invested in SQN Asset Finance Income, which invests in operational and finance leases and has a yield of 7%-8% per annum; Herald investment trust and the Biotech Growth trust; and high quality US investment grade bonds to mitigate the risk of a rising oil price.