Yield of Dreams

Mutual Funds Trade In Cash For More Risk

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cash-in-handAn Elliott Wave International article recently reported that mutual fund cash levels are at a record low of 3.4 percent, which just goes to show that the divergence between investor and asset manager sentiment is widening. We've written up down and sideways about investors still holding huge amounts of cash and remaining cautious despite the fact that we're in a bull market run.

EWI says:

The near-certain answer is this: money managers are incredibly optimistic about how they think risk assets will perform. Otherwise they would hold more cash, to defend against the future.

Scott Colyer, CEO of Advisors Asset Management, has a bullish outlook on equities, saying he would expect stocks to price higher in the year ahead.

But UBS Wealth Management said in its investment strategy guide that it's trimming back its overweight in equities slighly and increasing its weight to cash to 5 percent, given the renewed pressure in the equity markets.

But 3.4 percent? Doesn't that seem a little risky? And to what extent are investors aware of the risk their mutual fund managers are taking? I have a feeling if they knew, they wouldn't approve, especially given this (EWI):

In the past, low levels of mutual fund cash often coincided with market tops.

That might not be the case this time, but it might be time to take a fresh look at the portfolio and ask our mutual fund managers about their cash levels. They've got some 'splainin to do!

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Casting a gimlet-eye on asset management issues.

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