I was watching this Q&A with Stephen Yiu of Blue Whale on PIWorld when Stephen mentioned something that caught my attention. The fund utilises an MSCI World ETF as a placeholder when the management team wants to invest cash in the market, but doesn’t have any current investment ideas. I guess that means when they have ideas which are not at an acceptable valuation or they feel they are fully allocated in their best ideas.
Is this a good strategy? I think it could be. If an investable idea presents itself at an acceptable valuation independently of the wider market then they can switch from the placeholder to the new investment. If an idea reaches an acceptable valuation as a result of a wider market move downwards, they could make the switch from the placeholder accepting that everything has moved down together. Alternatively they could decide that a wider market downturn is a good time to release cash that they have been keeping out of the market to purchase the new investment and wait for a better opportunity to exit the placeholder.
I do limit the amount of cash that I hold but I don’t often have excess cash that I want to be invested when I’m not seeing any opportunities. It could happen though and putting it into an MSCI World tracker seems like a reasonable temporary home.
Interested in any thoughts on this strategy or other cash management strategies people are using.