Nervous funds are banking on cash

The Footsie may have risen by 9pc in four days, but . . .

NERVOUS fund managers are pulling money out of the stock market and now have more cash in the bank than during the financial crisis.

Following a tumultuous start to 2016, professional investors have the highest levels of cash in their portfolios for 15 years, outstripping 2008 before the collapse of Lehman Brothers.

A survey of 198 fund managers by Bank of America Merrill Lynch has revealed almost one in five of the investment experts expects a recession in the next 12 months.

The findings reveal just how worried fund managers are about the outlook for the global economy and stock markets around the world.

The FTSE 100 rose 2.9pc to 6030.32 yesterday – taking gains in the last four days to 9pc – but is still down 3.4pc this year and 15.1pc since its peak in April last year.

China’s stock market is down more than 40pc since last summer while benchmarks across Europe and in the US have also been hammered as struggling firms slash dividend payments to shareholders and cut jobs.

Volatility, according to the Vix index, is up 52pc from a year ago.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: ‘We’re in a trampoline market right now, where stocks are bouncing around wildly almost every day. Very often the stocks that fall to the bottom of the Footsie on one day rise to the top on the next.

‘With markets so volatile, both buying and selling are likely to be painful experiences in the short term, but long-term investors can take some comfort from the fact that the chance of getting a positive return from stocks increases with time spent in the market.’

It is not just ordinary savers who are feeling spooked.

Professional fund managers are keeping more of their money in cash than they have since November 2001, shortly after the 9/11 terrorist attacks in New York.

The average fund now has 5.6pc of its assets in cash. Managers are shifting investments out of financial and healthcare firms into steadier utilities and telecoms companies. Many worry about China – 71pc of managers think the country’s market has further to fall – while 27pc fear a US recession.

Almost one in 10 managers is concerned about a British exit from the EU, while nearly a quarter are worried about a debt default in the emerging markets or energy sector. Some 25pc of investors believe global profits will fall over the next 12 months. The £2.5bn Troy Trojan fund has a massive 24pc of its assets in cash.

It has returned 4.1pc over the past six months, while the average fund in its sector has lost 6.7pc. The same rules apply to savers.

Experts said that while keeping some of your powder dry is sensible, panicking and selling at the bottom of the market is the worst thing you can do.

Tom Stevenson, investment director at Fidelity, said: ‘While it may be tempting to jump ship when markets get chopping, investing should ultimately be for the long-term. The amount of time you are invested in the stock market is far more important than trying to time the stock market.’

Research from Fidelity shows that those who invested £1,000 in the FTSE All-Share 30 years ago and left their investment untouched would now have £14,733.

If they had panic-sold when the market was rocky and ended up missing the best 20 days, they would have just £5,057. Nick Kirrage is co-manager of the £723m Schroder Recovery fund, where 10pc of fund money is now in cash.

He said: ‘This is not the type of market where there are lot of great ideas to invest in. If there were we would be putting money into those shares. Good opportunities are few and far between at the moment and we need to be patient.’