Is Cash The King For Portfolio Management Services ?

Out of the 144 PMS strategies that disclosed cash, 47 have between 5% & 10% while 5 strategies are completely invested i.e. zero cash as on May 2020. In this article, we will look at, among other things, how strategies are placed with cash, changes in cash positions, and also put the spotlight on those who display extreme positions in terms of cash holdings as % of assets.

24 Jun 2020
“Revenue is vanity, profit is sanity, but cash is king.” 

For portfolio managers, cash is also a double-edged sword. Investment experts, typically, have cash from inflows while they are still scouting for buying opportunities or when they book profits but haven't redeployed the money yet. Professional managers can regale you with stories of how innocent 'cash' became a drag for returns in a rising market while smart 'cash' shielded the portfolio from heavy dents when bears sent bulls packing. 

In short, intelligent use of cash can alter outcomes. But, the use of cash as a portfolio tool requires conviction. PMS Bazaar tracks 144 PMS strategies who disclosed cash at the end of May 2020. In this article, we will look at, among other things, how strategies are placed with cash, changes in cash positions, and also put the spotlight on those who display extreme positions in terms of cash holdings as % of assets.

Cash stance

In April 2020, the number of PMS strategies that had disclosed cash numbered 132. In May 2020, as many as 144 PMS strategies revealed cash details. Usually it is typical for portfolio managers to hold 5% cash under ordinary circumstances. The number of strategies that held less than 5% cash stood at 35 in May-2020 compared to 31 in April-2020. Strategies that held close to 5% cash include SMC Global Growth Strategy, Dalal & Broacha Long Term Growth, TCG Advisory $5 Trillion Fund, Centrum Deep value IV and Sundaram Alternates Pace.

For the 132 strategies that are common (in both April and May) for disclosing cash positions, 55 maintained the same level of cash (with -1% to +1% change). Examples include Edelweiss Focused Small Cap, Equirus Long Horizon Fund, Motilal Oswal NTDOP, Ambit Coffee Can, Marcellus Consistent Compounders and ICICI Value Portfolio. You may recall how markets had hit a nadir in late March, but thereafter markets rallied. 

Some investment managers argue that holding cash positions upto 10% is not necessarily bad. Cash positions are captured on a date. Around that day if money comes in the form of investor flows or if the manager has realized profit in some positions, that money will remain. Strategies with cash holding between 5% & 10% at the end of April were 40 and at the end of May were 47. Examples of strategies with close to 10% cash include Varanium Large Cap Focused, Marcellus Little Champs, Nippon India Economic Transformation, Marathontrends Megatrends and Kotak Pharma. 

Interestingly, as many as 6 strategies had NIL cash holding in April and this number marginally went down to 5 at the end of May. 

100% invested PMS strategies in May include AccuraCap Alpha10, AccuraCap Picopower and Nine Rivers Capital Aurum Small Cap Opportunities.

Cash outliers

In this section, we will look at outliers. This will be PMS strategies which hold more cash or less cash than the usual. 

Of course, one can argue how 'usual' cash holdings are defined. This is why we only mention those PMS strategies that have cash much higher than others. 

At the end of May 2020, there were 2 strategies, viz. First Global Indian Multi Asset (71.6% - cash + debt + gold) and Alchemy Ascent (57%), with cash & equivalent holding more than 50%. In May-end, there were 2 strategies with cash between 40% & 50% - Green Portfolio MNC Advantage and Green Portfolio Dividend Yield. 

Strategies with cash holding between 30% & 40% stood at 5 in April and this number went up marginally to 6 in May. These include Bonanza Value, Turtle Wealth 212 ° Wealth Mantra, Credent Growth Portfolio, Sharekhan Prime Picks.

The number of strategies with cash holding between 20% & 30% remained constant at 14 in April and May. The number of PMS strategies with cash holding between 10% & 20% in April was 35 and reduced marginally to 33 in May.

Cash moves

Active portfolio management does not always mean buying or selling stocks. The amount of cash in a portfolio can also have a bearing on portfolio returns. Hence, it may be useful to track cash moves on a month on month basis.

As many as 28 strategies increased cash in May-2020 than Apr-2020 by 1% to 5%. This is par for the course. But about 4 PMS strategies increased cash in May compared to April by more than 10% points. These are Tamohara TLES, Phillip Emerging India Portfolio, Piper Serica Leader Portfolio Strategy and Phillip Signature India Portfolio. 

Another 9 PMS strategies increased cash in May by about 5-10% points compared to levels in April. They include Avestha Growth, Sundaram Alternates Microcap Portfolio, Buoyant Capital Opportunities, and Kotak Fintech.

In terms of cash holding reduction, our study brought forward some interesting data points. Four PMS strategies reduced cash in May than April by more than 10% points. These four strategies are Anand Rathi Impress, Sundaram Alternates Pace, ICICI Prudential PMS Large Cap Portfolio and Stallion Asset Core. 

Lastly, 6 strategies, including Tata Consumption Strategy, Alfaccurate AAA Focus, TCG Advisory SMF Disruption, ICICI Prudential PMS Contra Portfolio and ACE Multicap, have cut cash holdings in May than April by 5% to 10%.

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