Cash, and a Little Gold, Are Kings: Strategist

Cash is seen by many in the asset management community as a cop-out, as those in search of return believe other assets will always outperform over time. But one strategist believes investors should think again.


“Telling investors you find cash an attractive investment is about as big a faux pas as you can make. It might even be on a par with telling your wife her rear end looks big in those new jeans. Just because it might be true doesn’t mean you should say so,” Dylan Grice, a strategist at Societe Generale in Paris, wrote in a research note.

“True, it generally has a zero expected real return. But at least there is a near certainty around that expected return,” he added.

With fund managers dismissing cash as a 'dead asset,' Grice believes they are being forced into riskier assets in the search for yield not matter what the cost.

“The job of the investment manager is not to indiscriminately ‘put money to work’but to exercise judgment in allocating it to the highest expected return for a given amount of risk,” he wrote.

“While that will generally be in risk assets, something which is generally true isn’t ‘always-and-everywhere’ true. On purely valuation grounds, cash will sometimes be the most attractive asset to hold.”

Following big gains for the S&P 500 , Grice believes the US market will be offering cash-like returns for years to come, just with far more risk. The big benefit of cash for Grice is that you can use it to buy when the market offers better opportunities for return.

“The holder of cash has an effective option to purchase more volatile assets if and when they become cheap,” he wrote.

Inflation Threat

With inflationary pressures on the rise, Grice believes holding 75 percent cash and 25 percent gold will help investors maintain the purchasing power of their savings.

“The real return on cash was still negative in the 1970s. This is where gold— which I consider as another currency — can be useful,” he said.

Pointing to the example of the 1970s when inflation was soaring, Grice said in some cases — for example in Turkey where inflation hit double and triple digits — investors did better than holding just cash.

If you are worried about the stock and bond markets then Grice predicts you could do worse than hold “a blend of cash, gold and a willingness to hold them until compelling value emerges elsewhere.”