Funds that Are Stuffed with Cash

Issue 11-13-17   |   Reviewer:   Delvin D. Hawley, Ph.D.
Disciplines:


Abstract

Fund manager Charles de Vaulx knows keeping 40 percent of his fund in cash is hurting results, but he says that being fully invested has zero appeal right now because stocks are so expensive. He says he's willing to have the fund underform while the bull market party goes on.

Several other prominent value fund investors have been keeping 20 percent to 40 percent of assets in cash for months—in some case, for more than a year—while the average equity fund holds 3.2 percent of assets in cash. They're betting that at some point equities will slump, and they’ll have a chance to scoop up bargains.

Investors who stick with these funds expect to earn respectable returns during rallies and outperform when markets turn down. Other investors are losing patience and are taking their funds out. Some investors and advisers don’t think stock fund managers should hold so much cash even when markets look expensive, because many investors prefer to make their own asset allocation decisions and don’t want to pay equity-fund-level management fees on idle money.

The strategy of going to cash is a form of market timing, which rarely works effectively or consistently. The high-cash fund managers say they aren't trying to time the market but just waiting for good investments and attractive prices.





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