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What happens when fund managers are forced to sell winning positions?
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Dora Seow
09 Dec 2020
Country Head, Singapore at Franklin Templeton
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Managers typically leave a certain percentage of cash in their portfolios at all times, to provide liquidity for redemptions. However, should the redemption rate be higher than the cash holding, the manager may not be forced to sell “winning” positions, instead he/she could choose to sell a weaker position that might have already been on the “sell” list and ready to be removed from the portfolio. In the extreme case where redemptions are unmanageable and would force a compromise to portfolio returns such that it would not be in the interest of the remaining unit holders, there is an option that is usually made available in unit trusts, that will allow the fund manager to hold off redemptions for a certain period time.