Henderson’s McQuaker: Why now is the time to hold cash

Henderson multi-asset head Bill McQuaker fears the market is ignoring a host of dangers that could shatter the fragile economy before it has fully rebounded

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The general sense of calm presently encompassing markets is irking Henderson head of multi-asset Bill McQuaker.

“Levels of market volatility remain surprisingly low and there is this level of complacency that is somewhat troubling,” he says.

While a sense of serenity may be colouring the current backdrop, he asserts there is still enough going on to warrant concern. Markets have come a long way since their 2009 nadir and McQuaker points out that because substantial monetary and economic hurdles remain as central banks move towards turning off the liquidity tap, no one should be surprised if markets experience a more substantial setback.

He says: “My advice to investors right now is, if you want to make a lot of money from financial markets, don’t start here. Nothing looks particularly compelling for value.”

As such McQuaker is holding typically 10-12 per cent cash across his fund range, which is double the normal levels. He says: “Holding some dry powder in the form of cash could turn out to be the wisest investment in the near term.”

The Scotsman cut his teeth at Credit Suisse First Boston and NatWest Securities. Alongside Paul O’Connor, he now heads Henderson’s multi-asset team. Next year marks his tenth anniversary at the firm, with assets under management in the division swelling from £600m to about £6bn in that time.

He originally joined as head of the multi-manager team with responsibility for the group’s Multi-Manager Income & Growth, Managed, Active and Distribution funds as well as asset allocation within the funds.

In 2007, he helped launch Henderson’s Diversified Growth proposition and in 2011 became deputy head of equities.

Looking back, he says: “Clients of all sorts have become much more focused on risk and risk management. A decade ago it was about how to make money. Today, as well as wanting to know how you will make them money, clients want to talk about how we are ensuring their capital is better protected.”

However although he is cautious in his positioning, he can still see reasons for optimism. “The US looks like it is in for a period of good economic growth and emerging market concerns have eased as Chinese authorities have been making moves to stimulate credit growth,” he says.

Looking ahead to the third quarter, he adds: “The most important numbers coming our way will be from the US labour market – the rate of job creation and the rate at which wages increase. Right now the landscape in the UK is looking a lot hotter. If we start to see similar data surface from the US, it may well force the Fed’s hand to move sooner in terms of rate hikes.”

McQuaker is surprised by the faith markets have placed in central bankers, something he anticipates will be put to the test. But he adds there is still potential to mine value from markets.

He says: “We prefer equities over bonds and within this large cap over small cap. In the past few years small- and mid-cap stocks have done exceptionally well across almost all geographies, whereas large caps have been the laggards. As a result we can now see some opportunities in the sector.”

The most pronounced position for him now is Japan, a region he has been moving money into.

“Japan has not done as well in 2014 as it did last year. But Japanese fundamentals are much stronger than they were in 1997, when the last increase in the sales tax occurred. And prime minister Abe and the Bank of Japan remain extraordinarily committed to enacting reforms and generating inflation.”

McQuaker