At around 49 000 the JSE’s All Share Index (Alsi) is at a record high following a decade of average annual returns of around 20%.
Duane Cable, portfolio manager at Coronation Fund Managers, says the cash allocation in its Balanced Plus Fund at the end of March was 19.4% in local cash and 0.8% in international cash. In a normal cycle, one could expect a cash allocation of around 5% to 10%, he says.
Cable says this reflects their concerns about valuations in the local market. “Overall, we think the [local] market is quite full. We’re struggling to find value in our market.”
Holding cash enables Coronation to take advantage after any future correction.
At the end of March this year, Allan Gray’s Balanced Fund had a total cash exposure of 16.9% (13.6% local, 3.2% international and 0.1% in Africa). This is higher than the 14% average since inception, but lower than the 25% reached in late 2009 and mid-2001.
Simon Raubenheimer, portfolio manager at Allan Gray, says they are finding fewer opportunities, hence the cash allocation.
Raubenheimer says the market has tripled in five years – valuations are stretched, price-earnings ratios are high and dividend yields are low.
Investors would be lucky to get low single digit returns in real terms from the Alsi over the next three years, he says.
Paul Bosman, fund manager at PSG Asset Management, says every security they buy must deliver a return exceeding the inflation plus a premium related to the risk of the instrument.
“If we don’t find such opportunities, then we will by default hold cash.”