'It's time to hold
physical cash,' says one of Britain's most senior fund managers by Andrew Oxlade
| June 20, 2015
It may be time to put money
under the mattress. High profile fund managers explain how
to prepare for a 'systemic event'
The manager of one of Britain’s
biggest bond funds has urged investors to keep cash under
Ian Spreadbury, who invests more than £4bn
of investors’ money across a handful of bond funds for Fidelity,
including the flagship Moneybuilder Income fund, is concerned
that a “systemic event” could rock markets, possibly similar
in magnitude to the financial crisis of 2008, which began
in Britain with a run on Northern Rock.
“Systemic risk is in the system and as an
investor you have to be aware of that,” he told Telegraph
The best strategy to deal with this, he
said, was for investors to spread their money widely into
different assets, including gold and silver, as well as
cash in savings accounts. But he went further, suggesting
it was wise to hold some “physical cash”, an unusual suggestion
from a mainstream fund manager.
His concern is that global debt – particularly
mortgage debt – has been pumped up to record levels, made
possible by exceptionally low interest rates that could
soon end, and he is unsure how well banks could cope with
the shocks that may await.
He pointed out that a saver was covered
only up to £85,000 per bank under the Financial Services
Compensation Scheme – which is effectively unfunded – and
that the Government has said it will not rescue banks in
future, hence his suggestion that some money should be held
in physical cash.
He declined to predict the exact trigger
but said it was more likely to happen in the next five years
rather than 10. The current woes of Greece, which may crash
out of the euro, already has many market watchers concerned.
Mr Spreadbury's views are timely, aside
from Greece. A growing number of professional investors
(see comment, right) and commentators are expressing unease
about what happens next.
The prices of nearly all assets – property,
shares, bonds – have been rising for years.
House prices have risen by 26pc since the
start of 2009, and by 68pc in London. The FTSE 100 is up
Although it feels counter-intuitive, this
trend of rising prices should continue if economies remain
weak, because it gives central banks licence to keep rates
low and to carry on with their “quantitative easing” programmes.
Conversely, if the economy does pick up
and interest rates need to rise, the act of doing so is
likely to stall the economy and force them to be reduced
again. Once more, demand for those mainstream assets would
be rekindled and the asset boom continues.
But then there is the shock event. Daily
Telegraph columnist Jeremy Warner also captured some of
the concerns this week when he wrote that the trigger for
an “inevitable correction” could come from “a clear blue
sky – a completely unanticipated event”.
How are fund managers preparing for this
Mr Spreadbury sticks to bonds because of
the remit of his funds. Within that world, he said a shock
to the system would cause a flight to safety and the price
of British government bonds, or gilts, would rise sharply.
He also holds bonds of companies that would be most protected
in times of turmoil – water companies, power network operators
– and those where the bonds are secured on a solid asset,
such as land or buildings.
Examples include Center Parcs and Intu,
which owns shopping centres.
Marcus Brookes, another well regarded fund
manager who looks after billions of pounds worth of investments,
is less constrained in where he invests, because of the
different remit of his funds. Schroder Multi-Manager Diversity,
for example, can pick and choose between assets.
Mr Brookes said the probability of a major
shock event was small but even he holds 29pc of the Diversity
portfolio in cash, a huge proportion compared with most
funds. This decision is due to his concern that bonds are
overvalued and may fall. He aims to deliver returns of 4pc
above inflation so can’t afford to put too much in assets
that he believes will lose money.
“The problem is that people are struggling
to work out how to diversify if QE programmes stop,” he
Mr Spreadbury added: “We have rock-bottom
rates and QE is still going on – this is all experimental
policy and means we are in uncharted territory.
“The message is diversification. Think about
holding other assets. That could mean precious metals, it
could mean physical currencies.”