Is it wise or foolish to hold cash in your fantasy fund portfolio?

Linda J. Dodson

Pessimistic investors tackling The Telegraph’s Fantasy Fund Manager competition could have a better chance of winning by only holding the minimum amount in stocks and keeping the rest in cash.

Picking a portfolio of five stocks that will rise if markets tank could prove challenging. From January 17 to March 23, as stock markets tumbled, only one company in the FTSE 350 (excluding investment trusts) made a positive return – gold miner Petropavlovsk.

It would have been impossible to pick a five-stock portfolio of winners. So for those players confident of a second market collapse one strategy could be to hold a lot of cash.

This can be done on the game by choosing five stocks (the minimum amount) each with a 5pc weighting. The portfolio would then have 25pc invested in the market and the rest in cash – although this will not earn you anything.

It may not be the most fun approach but could be the best way of staying on top of leaderboard should we witness falls similar to early 2020.

There are a number of reasons to believe share prices could go backwards in the coming months. Of most pressing concern is the potential for a second spike in coronavirus.

The British economy contracted more than 20pc in April at the peak of the lockdown – the steepest and most severe monthly drop on record. A second wave infections and another lockdown would be disastrous for the economy and stock market.

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