Cautious investors may want to take note of the legendary investor’s strategy.
Investors concerned that stock markets could tumble may want to follow the lead of veteran investor Warren Buffett and take some risk out of their portfolios. The world-renowned investor has been increasing the proportion of cash held in his Berkshire Hathaway investment company.
Figures from AJ Bell show that the holding company now has a hefty $129.6 billion (£99.9 billion) of its $709 billion (£546.7 billion) of assets in cash.
Russ Mould, investment director at AJ Bell, says it shows Buffett is struggling to find opportunities in US companies. In an annual letter to shareholders in February, he admitted he and his business partner were struggling to find ‘good acquisitions and sensible prices’.
That is, perhaps, not surprising at a time when the S&P500 and FTSE 100 indices have continued to trade around record highs, while just days ago Apple reached a record-breaking market capitalisation of $1 trillion.
Mould says: ‘Buffett and partner Munger seem to be patiently building up their cash pile, waiting for what they feel are more sensible prices.’
Other instances when Berkshire Hathaway’s cash allocation grew include 1999, before the dot com bubble burst, and between 2005 and 2007, ahead of the financial crisis.
Mould adds: ‘They then used that cash to buy assets at much lower valuations in 2000 to 2003 and between 2007 and 2009 as markets melted – and to great effect judging, by the subsequent returns.’
Buffett is not the only investor who appears to be feeling cautious; several fund managers have increased their cash allocations. Crispin Odey, the hedge manager who famously predicted the financial crisis, has 15 per cent of the assets of his Opus fund in cash currently.
Meanwhile the F&C Mid Cap fund has 15 per cent of its assets in cash, Investec Cautious Managed 20 per cent and JO Hambro UK Opportunities a hefty 29 per cent.
But not all investors are feeling so bearish. UK investors poured a net £840 million into funds in June, according to most recent figures.
Meanwhile, research from ratings agency Moody’s shows the value of merger and acquisition transactions reached $2.6 trillion (£2 trillion) in the first half of the year.