Cash is the current fund management king

Now is the time to hoard cash.

That might seem like a foolish statement, given that cash savings rates are close to zero and offer investors no returns. But there is some logic in this investment strategy.

Bill Eigen at JPMorgan Asset Management and Marcus Brookes at Schroders are two fund managers who are doing precisely this as they play a waiting game with the US Federal Reserve.

Mr Brookes has a 28 per cent weighting of cash in his flagship multi-asset fund, while Mr Eigen has 37 per cent in his absolute return fund.

In essence, they are using cash as a strategic allocation in the expectation that bond prices will fall once the Fed finally bites the bullet and increases interest rates for the first time in a decade. Then they will use their cash to buy cheapening bonds, assuming the market weakens as policy is tightened.

In many respects, it is hard to argue against this strategy if you are a fixed income fund manager. Although cash offers little or no yield, it is not offering negative rates. As Mr Brookes says, investors do not have to pay to hold cash as they do with the $2tn of bonds, which are trading with negative yields.

Second, is it wise to lock in negative or extremely low interest rates for two, five or 10 years? Some banks, pension funds and insurance companies have to buy these safe bonds because of a combination of regulations, capital constraints and the need to match their assets and liabilities. But investment managers, who want to make the biggest possible returns for retail clients, have no such obligations.

There is also an argument for increasing cash levels for equity fund managers.

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In Europe some investors say shares have now hit the fair to high level on the valuation scale as markets have rallied to fresh all-time highs.

Tineke Frikkee, who manages the Smith & Williamson UK Equity Income trust, and Henry Dixon, who manages the GLG Undervalued Assets fund, have both more than doubled their percentage of cash holdings since the start of the year, to 12 per cent and 11 per cent respectively, according to FE Trustnet, the data provider.

Like Mr Brookes and Mr Eigen, these higher cash levels mean they can move quickly and buy into a falling market should equities come off the boil.

Of course, this is a gamble.

Mr Brookes is extremely overweight cash in his flagship multi-asset fund. This is money that could have been put to work in dividend-paying equities or high-yield bonds.

But he still argues that the strategy is paying off. His fund has delivered 4.6 per cent year to date, which is higher than his annual target of 4 per cent.

In the past six months, he has used some of his cash, which peaked at 32 per cent last September, to buy into the high-yield bond market, which has weakened. Holding cash in dollars has also been a boon as the greenback has strengthened.

Elsewhere, other fund managers, such as Goldman Sachs Asset Management, are holding higher levels of cash and not taking aggressive positions.

They justify their lower levels of risk because of uncertainty across the globe, whether due to when the Fed will raise rates in the US, concerns over the path of the Chinese economy in Asia or because of fears that Greece will reignite another crisis in Europe.

In the past five years, high cash allocations have meant lower returns and performance as markets have rallied in equities as well as bonds. But for now, cash is king for some fund managers.

David Oakley is the FT's investment correspondent

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