The world's US$58.5 billion man, investor Warren Buffett, has for many years highlighted the benefits of holding large chunks of cash. Buffett, via his company Berkshire Hathaway often holds billions in cash simply to allow himself the optionality of seizing opportunities when they present themselves.
Interestingly, it appears some of Australia's top investors are currently following in Buffett's footsteps and getting cashed up too!
Recently, the Australian Financial Review reported that leading fund manager John Sevior, who previously worked and was the star portfolio manager at Perpetual Limited (ASX: PPT), has raised his Airlie Fund's portfolio cash levels to 15%. He noted that "we have built up the cash after we started selling stocks that had become expensive."
When the market gets overheated, smart investors sell
Buffett famously returned cash to his partners in the late 1960's when he became concerned that he could no longer find bargain stocks in an overpriced market.
Recently, David Paradice returned funds to his investors too. Meanwhile, funds managed by Magellan Financial Group Ltd (ASX: MFG) have been increasing their cash weighting. Cash is now around 10% of their portfolios with the firm noting "rising interest rates could lead to a material correction in credit and equity markets."
Here are 3 reasons why now could be the time to increase your holdings of cash
- The end of QE (Quantitative Easing) and rising interest rates need to be factored into your future outlook for economies and stock markets around the globe. Many believe that QE has artificially raised the price of equities and worryingly this could unravel.
- China's preliminary PMI disappointed last week showing a sharp slowdown in manufacturing to just 50.3. Australia is heavily dependent on robust growth in China to drive our exports, so if this downwards trend continued it would be a concern.
- It's been a long time since there was any sort of decent correction. It's rare for the market to continually move up without consolidating – the longer this bull market continues the higher the probability that a more appealing buying opportunity is just around the corner.
