Stay in cash or get invested? Wealth managers are divided

Investors armed with cash are awaiting a market setback in the coming weeks to invest in autocall structured products and alternatives, but some wealth managers believe staying in cash for longer is more attractive.

Markets have rallied in the last few weeks, but investors remain cautious ahead of meetings in Europe over the debt crisis and as headwinds facing the US draw nearer, such as the presidential elections and the possible fiscal cliff at the start of next year.

Such caution is leading investment managers to preposition portfolios with cash, to invest in any market setback while also taking on risk protection strategies, said Matthew Robinson, executive director at Morgan Stanley.

‘Investors are waiting to see what happens in Europe. If the market experiences a setback, there will be higher volatility, the market will come off and there will be wider bank credit default swap spreads,’ said Robinson. ‘So you can then get two to three extra points on an autocall product.’

He said investors are generally sticking to defensive autocall products and believes that the FTSE 100, among other markets, have climbed up too far.

‘So as products autocall, investors take the redemption and wait for a setback to reinvest,’ said Robinson. ‘People aren’t buying the idea it’s all calm.’

He added that with the potential rise in volatility and fall in markets, investors are looking at volatility strategies. ‘Our VolNet Hedge strategy has now reached capacity and we are looking to launch a sister version in the coming weeks.’

But is cash still king?

However, some wealth managers are opting to stay in cash and highly defensive assets, in the view that they provide more accessible firepower to invest further down the line.

Stuart Fox (pictured), investment analyst at City Asset Management, said he is sitting in the cash camp. He added that although investing in volatility as an idea is interesting, he does not feel a lot of the products available are transparent enough or that they are easily understood.