Why cash is not king for investors!

Around 17th February 2025, Tech shares began to fall. Some people were afraid that the over-priced tech. bubble was finally popping. Others were reacting to the Trump effect and USA instability.

Some investors feared the worst and sold up and converted their portfolios to cash or bonds - especially those with portfolios in tax free wrappers such as ISAs or SIPPs.

I have been quite heavily invested in Tech ETFs for some time. My favourites are IITU/XLKQ (XLKQ is synthetic and slightly better performer), IUCM Communications Sector S&P 500 and EQQQ/EQGB (EQGB is hedged against the $USD).

If I sold up in Feb.-April 2025, I could have invested my cash into a money market fund such as CSH2 to accrue interest (or if using Trading 212 - just leave it as cash and they will pay you interest at a very good, but slightly lower rate).

In April 2025, any UK/EU investors in US stocks would have felt the effect of the USD-GBP exchange rate (up to -9%) as well as the Trump effect. This affected both the S&P 500 and NASDAQ ETFs as well as most other US companies.

I saw my portfolio drop by 10% in value in April.

However, I did not sell off my shares, but instead started to transfer more of my reserved cash into Trading 212 in order to buy more 'cheap' USA Tech stocks. I did convert my EQQQ ETF to EQGB however.

It became clear that money was flowing out of US stocks at the time and I was looking for a safer haven whilst the USA economy was seemingly controlled by a president who did not seem to understand the first thing about economics, let alone what import tariffs were!

I decided to invest in BNKE  Europe Banks and EQGB hedged NASDAQ 100 ETFs. This turned out to be a good move (especially BNKE which I have to say, did much better than I was expecting - I cashed in BNKE in August 2025 when it began to dip but have recently bought some more in lower quantities as I expect gov. defense expenditure to increase). We can see that the BNKE ETF rose in price starting at the beginning of 2025. Economists were anticipating that US companies would show low returns for several years. Even before 2025, many investment companies had started to adjust their portfolios and shift their weighting more to UK\EU companies!

Because most large Tech. companies are USA-based and so are in $USD, it would not make much difference if I bought a World Tech ETF such as XXTW instead of a say the S&P 500 Tech ETF IITU, because XXTW has an awful lot of US companies. Equally, many large UK Tech companies will have a lot of income in $USD from USA.

Governments

I am a great believer in watching where governments spend their (our!) money. They can raise $billions using their magic wands (gilts/treasury bills/notes/bonds, taxation, print money, tweak gold reserve valuations, print optimistic economic statistics, sell off natural resources, make promises they know they can't keep, etc.) and then splurge it on defense, infrastructure, health, social benefits, pensions, etc. This all has to go via financial institutions and we all know that large banks will never be allowed to fail even if they lend too much or take insane risks.

BNKE vs XUFB

So we can get a good feel for where investors money is going by looking at which countries are doing well in the Banking sector. Note that foreign currency exchange rates also have to be factored in.

However, it appears that in the last month, US Banks shares are beginning to pick up again for UK investors...

For UK investors, the USD-GBP exchange rate is now very good for buying US companies using £GBP, however most USA Tech companies have extremely high P/E ratios (some over 100) and are not particularly good value.

As a side-hustle, you can buy x2 or x3 leveraged ETFs (short or long). I have successfully used 3LBA when a large increase in EU defense spending was looking likely and also QQQ3 instead of unleveraged EQQQ (61% in 6 months, 23% in 3 months) just before Trumps Big Beautiful Bill was signed. I also shorted Tesla using 3STL in early April when there was a lot of anti-Elon feeling and Tesla cars were being vandalised, etc.

Summary

It is clear that the 'do nothing' philosophy and 'time in the market is better than timing the market' are better strategies than converting your stocks to cash during stock market corrections, but there is also an argument for changing horses as well as DCAing into alternative markets - after all, money has to go somewhere (even if it goes into gold).

In a falling market:

1. Try to find out where the big investor money is going. Check different sectors and countries. It may be useful to track bank ETFs.
2. Look at the USD exchange rate trend for your local currency. It may explain why the value of your US ETFs/stocks are dipping. Compare the performance of your ETF with a hedged version of the same ETF.
3. Follow government spending - e.g. defense, infrastructure, crypto, etc. The market will anticipate government spending and so the share price will be rising in those sectors/countries. Check changes of emphasis in large investor portfolios - e.g. Fisher Investments, to find a new potential rising market.
4. If the market dips by 10% or currency exchange rates start to slide, consider using some if your reserve cash to buy some more shares at a cheaper price. Now may be a good time to buy 'value' US companies (see chart below). Gold often goes up in bad times.
5. You can short some companies using -x2 or -x3. As well as providing short term profits, it can be used to hedge your existing shares or ETFs. Leveraged ETFs do increase your risk a lot however! Alternatively, use a long leveraged ETF if you want to bet on a rising share price.

DCAing into USA Value ETFs can be a good strategy on recoveries

3x NASDAQ leveraged ETF - only for the adventurous!

Lastly, don't be too greedy. If you have made a nice gain on an investment, consider selling some and diversify into other investment areas such as World ETFs or Small cap ETFs or emerging markets - or just build up your cash reserve again if you have depleted it.

OR - just do nothing and wait for the market to recover.

 Steve

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This is not investment advice - please do your own research. These stocks can be risky and volatile. Only invest what you can afford to lose.