Funds hoard cash as safety blanket ahead of Brexit vote

[June 22, 2016]  By Simon Jessop

LONDON (Reuters) - British mutual funds are showing their nervousness ahead of Thursday's vote on European Union membership by holding more cash than at any time in the past five years, although some are also looking to make quick gains.

While the bosses of Aberdeen Asset Management <ADN.L> and Jupiter Fund Management <JUP.L> are among those to have played down the impact on their businesses of a vote to leave the EU, many of Britain's money managers worry that billions of pounds held in UK assets would seek a safer home elsewhere.

Funds have stockpiled cash in order to be able to meet a possible surge in exit requests from spooked investors in the event of a 'Brexit', but they are also looking to be able to make quick reallocations of money in the wake of the referendum.

The result is that the mean average cash holding for all UK-based mutual funds at the end of May was 6 percent, its highest level since November 2011, Thomson Reuters Lipper data showed.

"Clients are nervous, worried and sitting back on their heels," Henderson Group <HGGH.L> Chief Executive Andrew Formica told reporters on Tuesday.

British funds have had a rough 12 months, shedding 18 percent of their assets, or 38 billion pounds ($56 billion), Lipper data showed.

If Britons do vote to leave the EU, this could increase negative investor sentiment and add to their woes.

Uncertainty has already taken its toll, with daily polls and bookmakers odds showing conflicting data that has in turn driven gyrations in currency, stock and bond markets.

While concerns are particularly acute for UK-focused managers, fears of contagion to Europe and elsewhere at a time of slowing growth in China and the faltering effect of ultra loose monetary policy mean managers globally have also ratcheted up their cash holdings ahead of the British vote.

A police barge chugs up The Thames past a 'Vote Remain' projection onto the exterior of Tate Modern, in the lead up to the EU referendum, in London, Britain June 21, 2016. REUTERS/Dylan Martinez

The Lipper data follows a survey of global fund managers by Bank of America Merrill Lynch last week which showed cash holdings were at their highest level since 2001.

At a time when fund managers across the world are being taken to task over high fees and poor performance, hoarding cash can irk savers who want their money put to work.

But with sterling, bonds and equities all having the potential to move sharply after the vote, some are positioning themselves for any potential bargains which could boost returns after a tough first half.

"With euro zone bonds at negative yields, holding cash should only be tactical in the hope of buying other assets cheaper," said Neil Dwane, Global Strategist at German insurer Allianz's <ALVG.DE> fund arm, Allianz Global Investors.

($1 = 0.6825 pounds)

(Editing by Sinead Cruise and Alexander Smith)

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