Recent trends suggest a sharp rise in investors’ appetite to cash, including a surge towards cash ETFs.
However, J.P. Morgan Asset Management (JPMAM) maintains it is still likely to underperform equities and fixed income in the year ahead.
Research by Bank of America and State Street both found investors are holding above-average allocations to cash.
The State Street Holdings indicators reveal cash allocations rose 0.3 per cent to 20.4 per cent and fixed income allocations rose 0.2 per cent to 28.5 per cent. Meanwhile, equity holdings fell by 0.5 per cent to 51.1 per cent.
Similarly, the Bank of America Global Fund Manager Survey found cash allocations rose to 5.3 per cent in October.
Michael Metcalfe, head of macro strategy at State Street Global Markets, added: “Investors are hiding in cash once again in the face of combined equity and fixed income market weakness.”
In the investment product space, Stockspot’s latest ETF report found there had been more than $1.6 billion in inflows towards cash ETFs in the past year alone, becoming one of the largest growing areas in the Australian ETF market.
Stockspot founder and chief executive Chris Brycki weighed in: “Cash ETFs, which invest in interest-bearing instruments like bank and term deposits, or short-term money market instruments, are on the rise.
“We’ve found that investors are choosing these products for their great returns and because they simply don’t have the same hassle and conditions of a high interest bank account.
“In our 10 years of researching the more than 250 ETFs on the ASX and Cboe Australia, this is the first time cash ETFs have received so much interest from investors and they are proving to be cash cows.”
However, JPMAM stated that, while the September quarter was not the best of times or the worst of times, it foresees cash will underperform in the year ahead.
In a media briefing, the firm noted markets gave up gains in the third quarter, with cash delivering 1.1 per cent above EM equity (0.3 per cent). Losses were observed in both Australian fixed income (-0.3 per cent) and global fixed income (-0.6 per cent), and with DM equity (-0.3 per cent) and Australian equity (-0.8 per cent).
However, its global asset allocation views for the next quarter suggest a neutral stance.
“Cash yields are attractive, but we prefer to deploy in higher carry credit; [with a] possibility of cuts later in 2024,” it stated.
Kerry Craig, JPMAM global market strategist, observed “a bit of a reality check” came through in the last quarter.
“It’s a case of thinking about cash being part of the puzzle, and I think the risk here for us is many investors have been sitting in cash for the last 12 months or longer, enjoying term deposits, and we’re very much aware that we’re pretty much at the end of the rate hiking cycle in many parts of the world, and rate cuts coming through will be a very different dynamic,” he said.
“It’s not the time to be in cash, that’s how we phrase it. We do think investors will get better returns from equities or more probably fixed income in the year ahead.”
