27 July 09
US equity investors swear off illiquid positions
UK portfolio managers more tolerant of thinly-traded stocks
Considering the credit crisis was strewn with the wreckage of illiquid investments, it’s no surprise portfolio managers are favoring liquid stocks. According to new research from Ipreo, the top 10 biggest US equity investors have cut their exposure to illiquid positions by an average of 37 percent over the last 12 months.
When comparing the US and the UK, there is a ‘stark disparity’, writes Ipreo analyst Carl Aldrich in the firm’s June/July BetterIR newsletter, which was issued last Friday.
UK investors are more inclined to hold illiquid positions. While 40 percent of US equity assets are held by firms with high sensitivity to liquidity, the number for the UK is just 9 percent. More than 50 percent of UK shares are managed by institutions with very low liquidity sensitivity, compared with 8 percent of US equity assets.
‘The largest UK investors show about twice the willingness to hold illiquid positions than their American counterparts,’ Aldrich concludes.
Dodge & Cox stands out as the major US fund manager with the highest tolerance to liquidity risk, with 27 percent of its assets in positions that could take more than seven days to unwind. At the other end of spectrum, 86 percent of BlackRock’s positions and 84 percent of Columbia Management’s would take just a day or less to sell.
To help small-cap companies with targeting, Ipreo has compiled lists of institutional investors with high proportions of illiquid positions. It also has lists of notable asset management firms that bought illiquid positions during the first quarter (see below).
"If you're a corporate trader and you're used to going to your corporate application, it really doesn't make sense" to go to a municipal application, according to Vales. "And if you're a muni guy going to a corporate application, that doesn't make sense. So we separated that security out and gave it its own application so you can identify the bonds."
Notable firms buying into or adding to illiquid positions
(% number is the proportion of new or expanded positions during Q1 2009 that would take more than seven days to unwind)
US
- Brown Capital Management (40%)
- Capital Research (23%)
- Capital World (20%)
- Columbia Wanger (22%)
- Davis Selected Advisers (28%)
- Dodge & Cox (23%)
- Fidelity (16%)
- GAMCO (21%)
- Heartland Advisors (25%)
- Neuberger Berman (16%)
- Primecap (13%)
- Third Avenue (49%)
UK
- BlackRock (UK) (27%)
- Fidelity International (34%)
- Insight (6%)
- INVESCO (91%)
- JPMorgan (UK) (25%)
- M&G (56%)
- Newton Investment (24%)
- Schroder (41%)
- Standard Life (29%)
- Threadneedle (14%)
Source: Ipreo
By Neil Stewart