Why Greg Canavan is holding 22% cash - and where he's looking to deploy

Please note, this interview was recorded Friday 20 March 2026

Almost a year ago, I sat down with Greg Canavan (virtually) to map out what he described as the “Anatomy of a crisis” using a Minsky-style framework to explain where markets sat in the cycle and what investors should do next.

Back then, the focus was on excess, euphoria, and the risks building beneath the surface. Fast forward twelve months, and the situation is very different. Euphoria is morphing into despair, and the focus is not on excess, but on shortages - specifically energy shortages and what impact they will have on the world.  

This time around, the conversation moved beyond where we are in the cycle and towards what kind of market we are entering.

“You’re going from a stock market that was very capital light to more companies that are capital intensive… and that has implications for valuations", notes Canavan. 

“If we see a trend towards more capital-intensive businesses… then the market multiple is not going to be as high as what we’re used to.”

“Markets have rewarded capital light businesses with high multiples… that dynamic may be starting to change.”

For Canavan, this is the crux of the issue. Even after recent market weakness, investors risk looking in the rear-view mirror, assuming lower prices automatically mean better value. But if the underlying structure of the market is shifting, so too is the framework for valuing it.

In this conversation, we revisit his crisis playbook and update it for a market that may now be entering a very different phase.

Markets are underpricing the downside

Canavan believes markets remain too complacent given the risks building beneath the surface, particularly around energy and geopolitics.

“I think the big risk is that the market isn’t necessarily cheap.”

While investors initially priced in a quick resolution to tensions in the Middle East, that assumption is beginning to fade. A prolonged period of elevated energy prices would have meaningful implications for inflation, policy settings, and ultimately equity valuations.

In the short term, he notes markets may be technically oversold and capable of a bounce. But zooming out, the broader risk-reward profile remains skewed if current expectations prove too optimistic.

A supply shock with real consequences

A central pillar of Canavan’s thinking is that this is not a typical inflationary environment. Instead, it is being driven by supply-side pressures.

“A supply shock is a tax on economic growth. It’s soaking up global liquidity that isn’t abundant.”

That distinction matters. Unlike demand-driven inflation, which reflects economic strength, supply shocks reduce purchasing power and act as a drag on activity. The complication is how central banks respond.

“If central banks exacerbate that tax by putting another tax on consumers and mortgage holders, then it risks slowing the economy down.”

In other words, policy designed to control inflation could end up compounding the slowdown.

The risk of a policy mistake is rising

In Australia, Canavan sees structural weaknesses increasing the likelihood of policy error.

“I think productivity is actually getting worse in Australia.”

With the economy already constrained, further rate hikes risk disproportionately impacting private demand while doing little to address the underlying drivers of inflation.

“If the RBA is saying the only thing we can do is raise interest rates… then we could quite possibly slow down markedly over the next sort of six months.”

That creates an uncomfortable setup where policy tightening may push the economy further than intended.

Positioning with optionality and value

Against this backdrop, Canavan is maintaining flexibility in his portfolio, with an elevated cash position.

“My cash levels are generally around 15 to 20%. I’m about 22% at the moment, and that’s really for optionality.”

This is not a macro call, but a reflection of opportunity. If attractive ideas are scarce, he is comfortable waiting. That patience is important in a market increasingly driven by flows rather than fundamentals.

“When momentum turns, you get panic selling… and that creates opportunities because the ETF sellers, they don’t care about price.”

He believes this dynamic is creating a more fertile environment for active managers and stock pickers.

Commodities and energy still lead

From a sector perspective, Canavan continues to favour commodities.

“Commodities were the place to go… one of the few sectors that are in healthy, strong uptrends.”

While the sector has recently corrected, he sees that as an opportunity rather than a warning sign. Large-cap miners such as BHP Group (ASX: BHP) have pulled back meaningfully and may offer value on weakness.

Energy has also been a key contributor to performance, with positions in Woodside (ASX: WDS), New Hope (ASX: NHC) and Yancoal (ASX: YAL)  providing resilience.

Coal as a classic cyclical trade

His exposure to coal reflects a disciplined, cycle-driven approach.

“It’s not going to get much cheaper. You buy the really good quality, low-cost operators, and you wait for the cycle to turn.”

As higher-cost producers exited the market, Canavan saw the conditions for a bottom forming. More recently, geopolitical disruptions have supported demand.

“I see thermal coal demand probably picking up quite strongly.”

Even under conservative pricing assumptions, these businesses generate strong free cash flow and dividends. That said, after a strong run, he is now considering taking some profits.

Selective opportunities beyond resources

Beyond commodities, Canavan is also finding value in overlooked parts of the market.

“Fund managers are hated at the moment… GQG (ASX: GQG) is trading on a 10% yield, very, very low PE.”

He believes the market is pricing in overly pessimistic assumptions around funds under management, despite evidence of resilience. These types of mispricings are becoming more common as passive flows dominate.

Avoiding banks at this point in the cycle

On the other side of the ledger, Canavan remains cautious on banks.

“Commonwealth is the poster child for the most expensive bank in the world.”

While the sector has held up well, he sees growing risks as the cycle matures, particularly if higher interest rates begin to impact borrowers.

“Banks are cyclical… we haven’t had a bad cycle for banks for some time.”

With property prices starting to ease and bad debts still at low levels, he believes the downside risks are not being fully appreciated.