In my first column as editor (19 June 2014) I suggested cash, not equities, was front of mind for investors. At the time, fund managers were increasing their cash positions, and figures from State Street showed that UK retail investors had 43% of their assets
in cash.

You might have interpreted this situation as a sign that investors were preparing for a market correction following five strong years for equities. Fortunately for those invested, there were another five and a half years of gains to enjoy.

Nine years later, the situation has come full circle. As I write my final column, cash is once again a key focus for investors thanks to decent returns available on savings accounts and the prospect of a global economic slowdown making equities less appealing.

Violence in the Middle East has also troubled the markets along with a growing number of large companies failing to hit earnings forecasts. According to research by Liberum, European companies have missed earnings estimates by 7.5% in the latest earnings season, following eight quarters of the better-than-expected results.

Yes, equities enjoyed a bounce last week when the UK and US central banks left interest rates unchanged. That helped to lift investor sentiment – but remember that earnings growth is one of the key drivers for share prices and if analysts continue to trim earnings forecasts, there could still be a headwind for shares.

I do not have a crystal ball and cannot say for certain what will happen next, but having cash to hand can give investors an advantage, namely the ability to go bargain hunting for stocks.

The idea of investing in companies when surrounded by unwelcome news might seem counterintuitive. History suggests it can be one of the best times to buy as you can take advantage of depressed valuations. The key is taking a long-term view and not letting short-term problems worry you. A well-run company with strong finances should be able to get through challenging times.

Three years ago, BofA Global Research analysed the previous decade and found that when its global panel of fund managers held more than 5% of assets in cash, it was time to buy equities.

Thirty-six ‘buy’ signals were issued between 2011 and 2020 when fund manager cash limits exceeded 5%. The average return from the S&P 500 index of US shares over the following six months from these signals was 6.5%.

BofA’s latest monthly fund manager survey on 17 October 2023 has fund managers’ cash position jumping from 4.9% to 5.3%, thereby sounding a new ‘buy’ signal. There is no guarantee this strategy will always work, but it is something to consider.

It is on that note that I would like to say thank you to my fantastic team on Shares for their hard work and to all our readers for your interest and support. It has been an honour to lead the magazine and I now pass the baton to Tom Sieber as your new editor.

I am moving to the newly created role of editor in chief at AJ Bell and will contribute articles to Shares as often as I can. I wish Tom the best of luck and I have full confidence that he will continue to deliver a top-quality magazine.

DISCLAIMER: AJ Bell is the publisher of Shares.
The author (Daniel Coatsworth) and editor of this article (Tom Sieber) own shares in AJ Bell.

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