Risk-averse investors could impact credit management practices
British investment managers are moving away from riskier assets like equity holdings in favour of cash holdings and bonds, according to Reuter’s latest monthly poll. Stock holdings dropped 4 per cent in August while cash holdings increased by 8 per cent – the highest level in a year. Bond allocations also jumped by 2.5 per cent.
But what does all this mean for businesses?
Well, the already expensive equity market is getting even pricier and firms may have a harder time selling off their shares. According to Robert Pemberton, investment director at HFM Columbus, the shift could be temporary as investors tread more cautiously in the face of geopolitical crises across Gaza, Syria, Iraq, Russia and the Ukraine. He argues that the resulting economic uncertainty has made lower but more predictable bond returns more attractive:
"Fixed income offers no value with very low yields on government bonds and tight spreads in the credit and high yield markets," said Pemberton. "Nevertheless ... investors have sought out lower risk assets amidst geopolitical concerns."
Bond holding hot spots
Most investors are turning their attention to the US, where the economy is beginning to show signs of a robust recovery. British gilts are attracting less attention as UK interest rates are no longer set to rise as imminently as anticipated. Experts believe the US will raise interest rates first, promising bigger returns for those who get in early.
“Consensus currently suggests that it will be the UK that blinks first, but there are signs that the US authorities may raise rates sooner than currently expected,” confirmed Mark Robinson, chief investment officer at Berry Asset Management.
Act now to boost long-term cash flow
Credit management professionals should liaise with investment experts now to make sure both personal and firm-wide investments are wisely spread. While you may be reluctant to embrace the low-yield returns of bonds, a potential drop in equity activity could make more certain cash flow solutions more popular than ever.
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