In this space, we’ve talked often about the conundrum cash-rich investors face.  If they’ve been out of the market or are sitting on a high proportion of cash, what do they do?  This week there were some comments from Earl (the Pearl) Bederman at Investor Economics (“IE”) about the trends in short-term investments.  IE is the leader (by a mile) in providing and analyzing data to the wealth management industry.  

“The deposit and fixed income assets of Canadians continued to creep higher in the second half of 2010, reaching another all-time high of $1.6 trillion by the end of the year. The fact that this growth has occurred against the backdrop of improving economic fundamentals and strengthening equity markets highlights the continuing risk-averse bias of Canadian households. This orientation is powerfully underscored by the nearly $1 trillion—or close to one-third of the entire financial wallet of Canadians—currently held in liquid and painfully low-yielding instruments.

The larger issue is when and where households will begin to deploy these monies in an unfolding environment of expanding wealth, stronger economic performance, improving equity markets, and an altered interest rate environment. Herein lies the ‘money in motion’ conundrum that will face all market participants in the months to come.”


IE’s quantitative analysis is aligned with our anecdotal observations.  The 2008 crisis created a special set of circumstances which led to a high proportion of the industry’s assets being held in near-cash instruments.  Two of the prime factors were the severity of the meltdown and the speed of the recovery.  Investors were driven to sell in the downturn and then didn’t have enough time to shift gears and re-invest.    

There will always be a large part of Canadians’ balance sheets sitting in savings and short-term investments, so we shouldn’t assume there’s $1.6 trillion waiting to go into long-term assets.  But Earl’s comments certainly indicate that there’s plenty of capital that is under invested at this point.