Cautious of Rebound, Top Australian Stock Fund Clings to Cash

(Bloomberg) --

An Australian equity fund that has returned more than twice its benchmark index since 2006 is holding higher levels of cash, citing skepticism over the furious recovery in markets.

Greencape Capital Ltd.’s Ryan Green says he’s finding fewer opportunities to buy stocks at attractive valuations after the rebound from the March lows. And the uncertainty over the shape of the economic recovery means he’s building a buffer to cushion the portfolio against more turmoil.

“We’re finding it hard to deploy cash because we’re not finding sufficient value,” said Green, who co-manages the Greencape Broadcap Fund and helps oversee about A$3 billion ($2.1 billion) in assets. “We’ve rotated the portfolio to be a little bit more defensive, given that the rebound has been so rapid.”

The Broadcap fund has climbed 9.4% annually since September 2006 before fees, topping the 4.5% year gain in the S&P/ASX 300 Accumulation Index in that time, according to the fund’s most recent performance figures on its website through to the end of March.

While Green said the portfolio’s mix of companies hasn’t changed much in the past month, the fund bought shares in iron-ore miner Fortescue Metals Group Ltd. early March. Expectations that Beijing would ramp up infrastructure spending spurred the firm to raise its exposure to mining and resource companies, a sector “not normally what you consider to be defensive, but in that particular environment, we did,” Green said. Fortescue shares were up as much as 3.4% in early Sydney trading on Tuesday.

Greencape also participated in several equity raisings over the last few months, including Oil Search Ltd. and Qube Holdings Ltd., he said.

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