Mutual fund houses’ cash holding is on a rise, reflecting valuation discomfort among fund managers amid global economic uncertainties, reported Economic Times.
The average cash holding of the top 20 mutual fund houses, based on assets under management (AUM), jumped to a record 5.8 percent at end September 2022 from 4.3 percent a year ago, according to Motilal Oswal Financial Services.
The top three fund houses in terms of cash holding are PPFAS (holding of 15.9 percent), Axis (10. 2 percent) and SBI (10 percent). There are numerous reasons for higher cash holding. First, the broad market seems to be richly valued.
The benchmark Nifty 50 index trades at a P/E multiple of 21, which is 13 percent premium to the 10-year average multiple.
Another reason that is cites is that global economic uncertainty is growing in the form of inflation in the US, the UK’s economic crisis, high chances of recession in Europe and the Russian-Ukraine war.
According to data published by Bloomberg, the CBOE VIX — a volatility index created by the Chicago Board Options Exchange (CBOE) — rose to 32. 4 on October 16 from 25. 6 on September 1. This reflects rising volatility in the US markets.
Fund managers are, therefore, waiting for the right opportunity to deploy cash. Mutual fund distributors also cite inflows in existing and new fund offers (NFOs) as another reason for higher cash levels at fund houses.