(Bloomberg) -- Lombard Odier fund manager Aurele Storno says he holds an embarrassingly high level of cash in his portfolios but sees few better alternatives as risks abound across most asset classes.
The Swiss firm, which has been managing money for the wealthy since 1796, is running more than 50% cash across the $4 billion in a fund strategy that Storno manages. Aside from a brief period a few weeks ago, that’s the highest level since the depths of the pandemic, when cash was at 65%.
“I feel very uncomfortable, very embarrassed -- I don’t like to have cash because people are paying me to invest money,” Storno said in an interview from his London office. “But at some point when everything goes wrong, you know, the saying goes, ‘cash is king.’ There’s no way to hide.”
The Geneva-based company started the so-called All Roads fund strategy a decade ago seeking stable returns, high liquidity and low risk. The funds are sold to high-net worth individuals, in addition to family offices, institutional and retail investors.
The strategy involves analyzing an array of indicators to assess risk across asset classes. Right now, the signals are flashing warning signs pretty much across the board, prompting the defensive shift into cash. That strategy has helped the funds skirt the sharp sell-offs that have seen the S&P 500 index drop 19% this year, while global bonds have declined 14%, based on the Bloomberg Global Aggregate Index. By contrast, the main All Roads fund is down just 6%.
“Uncertainty is still dominating,” Storno said. “It is still quite risky at this stage so we are not that bullish.”
Storno sees some pockets of opportunity amid the gloom. Commodities for one, and some areas of emerging markets equities along with China and Hong Kong.
Another drop in stocks, possibly prompted by cuts to earnings estimates, could present a good entry point to deploy some cash, Storno said. He also thinks we may be getting close to a tipping point in rates if inflation slows. That would make bonds more appealing, especially if equities tumble further.
“We are getting closer to that, but it’s still very much unsure,” said Storno, who is also the chief investment officer for multi asset at the firm, and runs a combined $9 billion overall.
That scenario could spark a revival in the much-maligned 60-40 stock/bond portfolio that had been a hallmark of pension funds for decades until a recent pullback, he added. That underperformance “corrected excesses” in the strategy, he said.
“If you have another leg down in the equity market, say 20%, then the prospect for returns of 60/40 will become quite attractive,” he said. “So I don’t think that the concept is broken.”
Lombard Odier oversees about 358 billion Swiss francs ($370 billion) in client assets.
©2022 Bloomberg L.P.