Cash is an asset class

Tyndall Partnerships

Cash is an asset class

My late colleague and oft-bearish fund manager Martin Gray used to quip that his bearishness moniker was misplaced and indeed he was bullish, only, he was bullish on cash; “cash is an asset class” he would proclaim with pride.

He was right, of course, as he often was - cash is an asset class, albeit one that carries a high degree of opportunity cost. Standing on the side lines when everyone else has the chance to make out like bandits is a brave call, and one that takes real conviction. Certainly, something Martin never lacked.

Within Tyndall Partnerships, we create and cultivate bespoke model portfolios on behalf of clients. We give clients what they want. However, almost without exception, we have been recommending and including a holding in the Royal London Short Term Money Market Fund, or for those of a more adventurous persuasion, the Vanguard UK Short Term Investment Grade Bond Index. Such funds help do the heavy lifting in times of strife and market volatility, whilst the rest of the portfolio is permitted to perform with greater freedom. They act as the perfect foil for the more adventurous and dynamic parts of the portfolio, nullifying some of their downside.

The Royal London fund is essentially a cash plus vehicle, investing in cash equivalents. The average maturity within is just over 35 days and according to the latest factsheet is yielding 1.13% versus base rate of 0.75%. It’s an attractive vehicle when comparing it to pure cash on a risk/reward basis. The Vanguard fund offers investors a pickup in yield of 1.22% and a duration of just under 3 years. Hardly racy stuff.

However, with inflation as is, one is most likely to consider it as part of one’s tactical rather that strategic asset allocation. Cash is rarely a meaningful part of a long-term asset allocation, but it is a very powerful tool to have in the box. The optionality of cash is often overlooked; the ability to deploy it into a falling or fallen market is a powerful trade. One isn’t having to sell one depressed asset to buy another. This is where the real money is to be made over the longer term by compounding returns at the margin.

There is no shame in acknowledging markets at certain points in the cycle look over-ripe. One doesn’t need to be ‘bullish on cash’ long term to understand the role it can play within an actively managed portfolio on an interim basis.

25th May 2022
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Data source (unless otherwise stated): Bloomberg
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