Change to cash – or not?

September 2008

With the volatility and uncertainty surrounding the equity and bond markets at present, cash is becoming an increasingly attractive option for confused and concerned investors.  But cash should not be seen as an ‘all or nothing’ alternative.

That’s the view of Stephen Rogers, joint MD of Taquanta Asset Managers , which is regularly ranked as South Africa’s top cash manager in a number of independent market surveys, and the asset manager of the NedGroup Money Market Unit Trust.

“It’s probably too late to switch from equities to cash right now,” he says.  “But it is time to re-weight one’s investment portfolio and to include a higher proportion of cash than before although it may not be advisable to move all one’s equity and bond investments into cash.

“However, if one is fortunate enough to come into new money – for example, from the sale of one’s property, an inheritance or even winning the lotto! – then cash is probably the best place to put it right now, at least until some level of normality returns to the equity, bond and property markets.”

Rogers dismisses the argument that equities remain a better investment option than cash due to the inflation, tax drag and self-discipline risks associated with ‘liquid’ cash investments such as money market funds.

He points out that, at present, very few investment opportunities can guarantee a return in excess of 12%  – which, at the current inflation rate is at least a positive return.

“What else is beating inflation or is likely to beat inflation in the foreseeable future?” he asks and adds that equity unit trusts are just as susceptible to tax and self-discipline risks as money market funds.

“The point is that while equities may have been able to deliver returns of above 30% in the past, negative returns are becoming something of a norm in the current volatile market. There are very divergent views on where the resources and financial counters are going, or even which counters still offer value. Any pure equity fund manager who promises a positive, inflation-beating return in today’s market is probably stretching the truth.

“Equity trading volumes are significantly down in the institutional space – the institutions are not going there – and that should serve as a guide to private investors,” Rogers concludes.

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