Invesco Canada blog

Insights, commentary and investing expertise

Rob Mikalachki | July 17, 2013

Why cash weightings are high right now

If you look at the three small-cap funds on the Trimark shelf, a dominant feature of the portfolios right now is their cash levels.

I addressed this recently for the June issue of our advisor magazine, Fundamentals, but it’s something that comes up a fair bit, so I think it’s worth addressing again here.

The cash weightings range from 14% in Trimark Canadian Small Companies Fund, 21% in Trimark U.S. Small Companies Class and 27% in Trimark Global Small Companies Class  (as at May 31, 2013).

This isn’t a top-down call; it’s simply our inability to buy the businesses we want at a price we want to pay.

I believe we’re starting to see some of the animal forces at work in the market. In a sense, people are prisoners of low interest rates.

Many investors are being pushed up the risk curve in search of some sort of income or capital appreciation and they feel the equity market is the only option. This influx of cash is driving up stock prices.

That’s what colours our outlook to some extent and why we’re finding it harder to discover new names trading at a discount. Of the 70% or 75% of the portfolio that’s invested, maybe 10% is close to being sold. As for the rest, we’re very happy to continue owning these businesses at their current values and we aren’t looking to scale back at all.

A positive point to consider is that even with markets up significantly, the Funds still offer upside opportunity for new investors, because the cash cushion gives us the dry powder to take advantage of any market sell-off.

I’ve been asked why the global fund has higher cash weighting than the U.S. or Canadian, despite being a much larger pond for us to fish in. It’s a fair question and the answer comes down to the high standard we hold ourselves to on the global stage. We have certainly erred on the side of caution, but again, we’ll be pleased to have the cushion when great opportunities arise.

It all goes back to the fact that this portfolio is yours, mine and my family’s and we want to make the best investment decision, even if it’s the tough, unpopular call. Enduring a little bit of short-term pain is part of long-term investing. It might feel unproductive, but we will sit on the cash if the market runs away.

That’s part of the process when aiming for  good long-term returns.

Let me know your thoughts. Feel free to leave your comments/questions below or via email.

Get more information on Trimark Canadian Small Companies Fund, Trimark U.S. Small Companies Class and Trimark Global Small Companies Class.
Learn more about the Trimark Investments team.

Trimark Canadian Small Companies Fund, Series A provided the following performance returns as at June 30, 2013: 1-year, 18.56%; 3-year, 14.39%; 5-year, 11.04%; 10-year, 9.82%.

Trimark U.S. Small Companies Class, Series A provided the following performance returns as at June 30, 2013: 1-year, 23.65%; 3-year, 18.62%; 5-year, 15.10%; 10-year, 8.43%.

Trimark Global Small Companies Class, Series A provided the following performance returns as at June 30, 2013: 1-year, 32.40%; 3-year, 19.66%; 5-year, 13.63%; Since inception, 3.27%.

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