A perusal of the portfolios run by some of Australia's top performing fund managers highlights the fact that the decision makers are currently choosing to hold high levels of cash.
Take for example listed investment company (LIC) WAM Capital Limited (ASX: WAM). At the beginning of the current financial year (FY) the portfolio was positioned with a 37% cash weighting. Fast forward five months and the cash weighting has been expanded to 45%. With the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) down 1% over that period and many individual stocks down significantly more, the move to cash looks very timely indeed.
Opportunities still present
Despite the heightened cash level which would suggest the fund manager is either concerned about increased downward momentum in the market or stretched valuations (perhaps both) they do still sees good value in certain stock positions.
WAM Capital's recent shareholder presentation singled out boat builder Austal Limited (ASX: ASB) for special mention. Austal manufactures vessels for the commercial, defence and leisure markets and has a market capitalisation of $450 million. According to WAM's presentation, Austal is expected to grow by over 15% in the current financial year and trades on a price-to-earnings (PE) ratio of 8.5x.
Another stock the manager likes the look of is IPH Ltd (ASX: IPH). IPH is a newly listed group specialising in intellectual property law and the company is expected to lead consolidation within this niche space. In this regard there are certain similarities to fellow listed peer Slater & Gordon Limited (ASX: SGH), which also just happens to be WAM's single largest position amongst its 'Research Driven' holdings.
Caution could be the safest path forward
In the long run, the stock market can be expected to outperform cash. Despite the higher expected returns from equities, it's important to always hold some cash to take advantage of opportunities when they present themselves.
With market volatility rising and looking increasingly fully valued, 2015 could offer some great opportunities to put cash to work.
