Lawrence House Fund Managers is preparing to reduce the cash levels it has built up across its multi-manager range because manager Alan Stokes believes valuations are becoming more realistic.
Stokes has allowed cash to grow up to 8.5 per cent in the Lawrence House cautious portfolio, 9.8 per cent in the equity income portfolio and 5 per cent in the balanced fund – more than double its usual weighting.
He believes recent falls in world markets, driven largely by concerns over the US sub-prime mortgage market and higher interest rates pushing up the cost of money, are leading to buying opportunities.
He feels there was a lot of froth in the markets, particularly on the back of private equity activity where takeover speculation pushed up company prices to levels that Stokes felt were unrealistic.
He prefers to buy funds run by bottom-up stockpickers, such as Glenn Pratt at Melchior, who can use market falls to add to their holdings at cheaper prices.
Lawrence House has earmarked some of the cash in the cautious fund for the quality end of the bond market, as exposure is down to around 34 per cent from its normal level of 40 per cent.
Stokes says: “We have been waiting for this so we have let cash build up across the funds. The thing I learnt during the 1970s and 1980s is that when markets go up without a pause, you know there will be tears before bedtime at some point.
“There was a blip earlier this year but I did not think it was enough. We have not been rushing into things because we think why buy for £1 last week what you can get today for 99p?”