Global fund raises cash levels

THE BlackRock Global Allocation fund, with US$23 billion under management, has been selling US equities and raising its cash levels.

US equity allocations have been cut from 32 per cent of the portfolio at the start of the year to 22 per cent today. Various valuation measures there all look overstretched, said fund manager Dennis Stattman.

The fund is holding more than US$5 billion in cash. Its cash levels, at 23 per cent, is higher than average in the fund's 16-year history. But it is still not quite the over-30 per cent levels in the past.

"If we were more confident about the outlook for the stock market, we would put some of that cash to work," said Mr Stattman, who is also BlackRock's head of global allocation.

There is also a dearth of opportunities in fixed income, he said.

However, he favours Japan, citing attractive prices, good cashflows, and some economic progress.

His fund has underperformed a composite benchmark in three of the last five years. It still managed a 42 per cent five-year cumulative return, versus 58 per cent for the composite.

"We were less aggressively positioned than we would have been . . . we did not foresee the degree of central bank aggressive money creation that supported this bull market," said Mr Stattman.

Many actively-managed funds have exited the market in the past few years, caught out by the extent by which central banks moved markets and the unpredictability of their actions. But Mr Stattman said he did not feel compelled to take on more risk to achieve better returns for investors.

"If we do get a period of significantly lower prices, we would most likely increase our commitment to risk assets," he said. "But we would be doing it at a level where we perceive the chance of us permanently losing money is not so high."