Some portfolio managers are navigating the current market turbulence by bulking up on cash.
Forty-four out of the 207 portfolio management services (PMS) schemes held over 10 per cent in cash at the end of January, data from PMS Bazaar show. Ninety-six schemes have raised their cash holdings in the past year.
Aequitas’ India Opportunities Product has over 88 per cent of its assets in cash, the most among PMS schemes. Shree Rama Managers’ Vriddhi Plan, Alchemy Capital Management’s Ascent and Turtle Wealth Management’s Wealth Mantra are other schemes with a high percentage of cash.
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High cash levels could indicate portfolio managers anticipate an adverse movement in shares going forward. It could also indicate profit-booking or a surge in flows that is yet to be deployed. Most of the PMS schemes tend to adopt concentrated portfolios skewed towards mid- and small-cap names. This can be rewarding in a rising market but can significantly hit returns in a prolonged downturn.
“With the valuations being what they are, it would be very hard for anybody to outperform on new AUM. This explains the reason why some schemes are sitting on high levels of cash,” said Rishabh Nahar, Partner and Fund Manager at Qode Advisors. “Sitting on 10-15 per cent cash, however, would not make a material impact to the drawdowns that PMS schemes have seen.”
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Low cash holders
ASK Investment Managers’ ASK Indian Entrepreneur Portfolio, the largest PMS scheme with assets of over ₹13,000 crore, has only 0.8 per cent of its assets in cash. White Oak Capital Management Consultants’ India Pioneers Equity Portfolio and Fractal Capital Investments’ Opportunities are the other large schemes with low cash holdings.
“Holding high cash levels depends on a fund manager’s ability to recognise excessive valuations and market exuberance. Many PMS providers operate on fixed-fee models, which incentivize them to remain fully invested at all times. This often leads them to prioritise fee generation over protecting investor capital,” said Anirudh Garg, Partner and Fund Manager at Invasset PMS.
The Nifty has slid 6.7 per cent in the past six months compared with a slide of 12.5 per cent and 17.2 per cent for the Nifty Midcap 100 and Nifty Smallcap 100.
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