Thesis raises cash weightings but equities still shine brighter than bonds

Over the last twelve months Thesis Asset Management has been raising cash weightings across its seven risk mandates in the expectation that equity markets’ ability to withstand increasingly bad news may be waning.
So far this summer equity markets have retreated from record peaks, with the FTSE 100 down 7% from the high seen in April.
James Nield, investment manager at Thesis, said the investment team had taken cash weightings to 4-9% of portfolios following a particularly resilient spell for equities.
“Cash is now higher than it has been historically, and that is a function of us assessing the current risk/reward trade-off,” he said.
“Equities have been very resilient and we question how long that can continue.”
However, the investment manager believes equities still look attractive to investors in the longer term, given the yield on offer compared to fixed income – the FTSE All Share is currently yielding around 3.5% versus a 2.06% yield on 10-year UK gilts.
Against a background of low inflation, and with interest rates unlikely to move significantly higher for many years, Nield said the current and future income on offer from equities was attractive.
“Equities still look attractive to us when you consider the yield on offer, especially given that a third of the companies in the UK now have no gearing,” he said.
In terms of other opportunities across asset classes, the team believes the end of the 10-year fixed income bull market still has further to go in terms of losses before some kind of floor for valuations is reached.
“We remain at the bottom of our allocation ranges when it comes to fixed income,” he said.
Elsewhere, the model portfolios continue to move away from closed-ended vehicles on liquidity grounds.
“We have sold positions in some closed-ended vehicles after a good spell for them, in particular among our alternative assets investments,” Nield said.  “In the main, we have shifted to open-ended products because they provide the liquidity we need for our growing client base, and we only have two or three closed-ended investments across our portfolios now.”