Big investors jump ship: should you follow suit?

Fund managers are shunning shares for bonds, gold and cash – partly in readiness to buy after the poll. Is your portfolio Brexit-ready? By Richard Dyson

Professional investors are holding more cash – as opposed to shares – than at any time since the New York terrorist attacks of 2001. Discretionary stockbrokers, who oversee portfolios of typically wealthy individuals, are even more cautious. They have pushed clients’ money into gold and hedge funds in preparation for a full-blown stock market meltdown.

Demand for “safe” government bonds has soared, pushing their already sky-high prices up so far that a record number now offer negative returns – losses that are seen to be a fair price for “safety” (see right).

Brexit is only one of the causes for alarm.

In its latest monthly snapshot of attitudes among a sample of global fund managers who oversee £460bn, published on Tuesday, Bank of America Merrill Lynch found respondents hoarding a “mountain of cash” ahead of a “summer of shocks”.

Non-Brexit shocks could include negative economic signals from China or the US or renewed anxiety about levels of debt in southern European countries and the strength of their banking systems.

Professional money managers say they are doing two things: protecting investors from plunging markets and waiting to deploy cash as soon as share prices drop to within a range they deem attractive. Then they will buy.

The advice repeatedly given to those who oversee their own pensions or Isas is to create an appropriate portfolio and hold on to it through periods of even extreme uncertainty, rather than try to “time” the markets. But with so many factors now adding to uncertainty, is this the moment to make an exception? Reduce exposure to shares? Do it, said David Scott of wealth manager Andrews Gwynne, whose clients are typically wealthy families with a conservative investment approach. He said: “The best way to make money is not to lose it in the first place. We are not of the view you should be fully invested. You should read the market. “Brexit is just one of many potential crises. Our view on Brexit is less important than our view that the euro cannot survive. “Where do you want to be when the euro implodes? That will be another Lehman moment.” He has 25pc of clients’ investments in cash. Much of the remainder is invested in funds that deploy a range of strategies to generate positive returns in all conditions. These include Polar Capital UK Absolute, Cartesian UK Absolute Alpha and Argonaut Absolute Return – all of which are available to small investors through major brokers. Mr Scott also puts clients’ cash with hedge funds that aim to profit if stocks fall. “We are believers in shares, but current prices are not credible,” he said. “The bond markets are telling us we’re facing a recession or worse. “If you look back at shares over the decades

6% The proportion of global share portfolios currently held in cash – the highest level since 9/11 13.3m Ounces of gold bought by exchange-traded funds in 2016 so far – the highest figure for any year since 2009 45% Annual increase in accounts opened by British investors at Bullionvault, the digital bullion exchange $10trn The value of government bonds, worldwide, paying a negative return – up 100pc since January

‘Acting at this late stage is risky. You could have a relief rally’

you’ll see patterns of four or five great years, followed by spells in which half those gains are wiped out. “You can avoid those wipeouts.” Don’t do it, said Mark Dampier of broker Hargreaves Lansdown, most of whose clients make their own investment decisions.

Mr Dampier cited two main reasons. First, it’s “too late”.

Share values have fallen sharply in recent weeks, he argued, so the potential to curtail your losses is reduced. Second, he fears investors who pull away from the stock market won’t invest again in time to benefit from a rebound.

“You have to get two decisions right,” he said. “You have to sell at the right time and then buy again at the right time.

“A lot of research exists to prove the point that the more you fiddle about, the lower your long-term returns.”

Jason Hollands of rival broker Tilney Bestinvest said, similarly: “Acting at this late stage is risky.”

Neither is he convinced that the poll will affect the stock market in an easily predictable way. “You could have a relief rally on a Remain vote,” he said. “But even on a Leave outcome it is not clear that the market would fall. With 72pc of big firms’ earnings coming from abroad, shares are likely to be underpinned. A weakening pound could also boost dollar earnings.”

Buying back into the market

If investors “take risk off the table” by selling shares or stock marketbased funds, there is the dilemma of when to reinvest.

You may hope to repurchase the same investments for less, following a rout, or you may look to adjust your holdings ( Heartwood Investment Management, for instance, is tilting “heavily” towards energy and mining stocks because of their overseas earnings).

Either way, “you need a method or trigger to prompt you to go back in”, said Mr Dampier. “It’s about human psychology. Investors can be bold about selling. But in my experience they do not buy again as easily.”

For him one buy signal is yield. “Under 6,000 the market yields about 4pc. That gets me interested. But I would still want to average my way through with staggered investments.”