cash in a Investment Fund, what does it mean?

happyhero

I'm looking at the details of a fund I hold with Hargreaves Lansdown and it shows what they invest in, the one I am looking at in particular is Casenove UK Smaller Companies and in the breakdown it says it has 88% invested in the United Kingdom which looking at the top ten holdings looks like shares (if I understand it correctly) and then it has 7.5% invested in "Cash and Equivalent", what is this, surely they wont have money sitting instead of earning, so what does CASH actually mean in Fund terms?

Also there is another heading which is called Direct Property and REITS, which is all property from what I can make out but how would they have invested in property, i.e. what property would they have invested in?

Any info appreciated.

Lokolo

Why wouldn't they have cash? Cash is liquid! This enables them to buy when the right oppurtunity comes up.

Wilkins

happyhero wrote: »

I'm looking at the details of a fund I hold with Hargreaves Lansdown and it shows what they invest in, the one I am looking at in particular is Casenove UK Smaller Companies and in the breakdown it says it has 88% invested in the United Kingdom which looking at the top ten holdings looks like shares (if I understand it correctly) and then it has 7.5% invested in "Cash and Equivalent", what is this, surely they wont have money sitting instead of earning, so what does CASH actually mean in Fund terms?

Also there is another heading which is called Direct Property and REITS, which is all property from what I can make out but how would they have invested in property, i.e. what property would they have invested in?

Any info appreciated.

Cash means money on deposit. As you surmise this won't be earning much interest, but it does enable liquidity and the option to buy without having to liquidate lucrative investments. Cash is an important asset class!

REITS refers to equity holdings in property companies that have the special tax status of Real Estate Investment Trust. They may also have direct (part-)ownership in other property.

happyhero

Lokolo wrote: »

Why wouldn't they have cash? Cash is liquid! This enables them to buy when the right oppurtunity comes up.

Yes I agree but would it not be better to have what ever cash they have spare invested in one of the shares they believe will make a profit and then when something new they want to invest in comes along, sell the amount they want to be able to invest the amount they want to buy in the new company, then their cash could have grown while waiting?

Also considering how fast they can sell and buy now it does not seem that time would be a problem when they needed the cash fairly quickly.

dunstonh

All funds require some cash. They need to cover income distributions, costs, planned purchases, withdrawals/sales etc. Depending on the remit of the fund, they may also have the option to go for safety if they fell the time is not right to be invested in assets they dont want.

Also considering how fast they can sell and buy now it does not seem that time would be a problem when they needed the cash fairly quickly.

Not all assets are liquid and sales cost money and forced sales can result in assets being sold at the wrong time or an asset they want to keep having to be sold.

Also there is another heading which is called Direct Property and REITS, which is all property from what I can make out but how would they have invested in property, i.e. what property would they have invested in?

Direct property will be actual property purchases. Shopping centres, retail outlets, factories etc. If the fund is made of property then it is important that a larger cash holding exists.

Wilkins

happyhero wrote: »

Yes I agree but would it not be better to have what ever cash they have spare invested in one of the shares they believe will make a profit and then when something new they want to invest in comes along, sell the amount they want to be able to invest the amount they want to buy in the new company, then their cash could have grown while waiting?

Also considering how fast they can sell and buy now it does not seem that time would be a problem when they needed the cash fairly quickly.

Ah, but this would mean that they were always in the position of being forced sellers --not a good place to be in general. Also, a certain amount of cash is necessary in order to service payment obligations.

westy22

7.5% in cash is quite common for a smaller companies fund at the moment as many funds have recently taken profits as they suspect that many UK smaller companies are now fully valued.

There are some Absolute Return and defensive funds that are currently holding 30-40% in cash!

Marazan

happyhero wrote: »

Yes I agree but would it not be better to have what ever cash they have spare invested in one of the shares they believe will make a profit and then when something new they want to invest in comes along, sell the amount they want to be able to invest the amount they want to buy in the new company, then their cash could have grown while waiting?

Also considering how fast they can sell and buy now it does not seem that time would be a problem when they needed the cash fairly quickly.

Selling and buying for a fund is logistically quite different than for an individual share holder and so at the scale that funds operate the market may well be no where near as liquid as you thimk it is.

IronWolf

Cash will be held in money market funds, which invest in short term government bonds and are safer than deposits in banks but provide the same liquidity.

bigadaj

IronWolf wrote: »

Cash will be held in money market funds, which invest in short term government bonds and are safer than deposits in banks but provide the same liquidity.

Well depends on how you deem safe I suppose, there's always some risk in government bonds as well.

grey_gym_sock

well, funds can't have all their bank deposits protected by the £85k FSCS guarantee, as they have too much cash (and the guarantee may not even apply to them at all - i'm not sure). as in individual, i reckon keeping within the FSCS guarantee is safer than using money market funds. especially as i believe the latter aren't all in government bonds, i.e. the credit risk is greater.