Cash Gets Jefferies Endorsement After Holding Its Own Last Year

• Ryan Labs Treasury-bill index rivals stock, bond total returns

• Strategist Darby recommends investors `tactically hold cash’

By David Wilson

(Bloomberg) – Holding cash didn’t cost investors much last year and may pay off this year, according to Sean Darby, Jefferies Group LLC’s chief global equity strategist.

The chart below compares the total return from cash, based on a Ryan Labs index of U.S. Treasury bills, with returns on U.S. stocks and bonds in 2015. They are represented by the Russell 3000 Index and the Barclays U.S. Aggregate Bond Index, respectively.

While the T-bill index returned only 0.2 percent, neither the Russell 3000 nor the Barclays Aggregate fared much better. Their returns, reflecting not only price changes but also dividend or interest payments, were about 0.5 percent.

“The one theme that worked well in 2015 and is likely to do so again in 2016 is to tactically hold cash,” Darby wrote two days ago in a report. Doing so will give investors a chance for “buying the ‘dips’,” a strategy worth pursuing as developed-market stocks and government bonds look expensive, he wrote.

“Investors ought to be more mindful of valuations,” the Hong-Kong based strategist wrote. Central banks’ efforts to revive growth through bond buying and other monetary policies have “already imprinted high return expectations in some equity markets well before the economies have recovered.” At the same time, he wrote, yields on sovereign bonds reflect economic pessimism.

Darby’s year-end forecast for the Standard & Poor’s 500 Index is 2,180, lower than the average of 14 strategists surveyed by Bloomberg in mid-December. In the report, he expressed more optimism about Japanese and European stocks than U.S. shares.