MUTUAL FUNDS ARE “ALL IN”
Eric King posted this interesting chart showing mutual fund cash levels. According to King mutual fund cash level has declined to its lowest levels ever:
“The percentage of liquid assets (aka mutual cash levels) was 3.4% in July. This is the lowest percentage cash level ever and is near levels that accompanied the 2007 equity market peak.”
You’re likely familiar with the myth of cash on the sidelines, however, if mutual fund managers are any sign of bullishness it’s clear that they’re quite bullish. The last two times we witnessed cash levels near these levels were directly before the 1999 market implosion and the 2008 market debacle. Surely it’s unwise to use any single indicator to make market decisions, however, this is one macro indicator that is worth noting.
Amazing in and of itself, but more so given the persistent and ongoing levels of redemptions.
One would assume a bigger cash buffer in light of the need to meet redemptions.
MUTUAL FUNDS ARE “ALL IN” …. bonds
If they miss a bull market they lose their jobs. If they lose money in a bear market they simply join everyone else but they keep their jobs. What would do with a wife and kids and bills to pay? The young guys take chances to make a name for themselves.
“There are “bold” traders and there are “old” traders.There are no “old, bold” traders.”
Oh the poor mutual fund. The only investment that actually has to show audited results to the public. I would love to see actual performance of some of the experts that are so critical of mutal funds. I suspect their performance isn’t so good or worthy of the attention they get.
If mutual fund typically carries 3% cash…and suffers ever going redemptions as we have seen in 19…then by law of math cash levels would suffer. In 1999 funds were getting flooded with cash and deploying almost every penny. Two completely different backdrops.
Yes and it’s important to note that the high cash levels are also due to the positive equity performance. Cash in the system does not change, but will fluctuate as equities perform. In this regard, the low cash levels are also a reflection of strong equity performance.
This is just another reason to index. Stock prices have the highest correlation since the 1987 crash, cash is trash, mutual fund managers must go big or go home. I’d prefer to own the beta of the market than the beta of a stock picker. And I’d prefer to do it at a fraction of the cost.
I cite here Charles Biderman (Trim Tabs) agsin (thanks TPC !!): “Starting in march 2009, Investors have pulled $ 700 billion out of CDs and money market funds, yielding (next to) nothing and have poured that into bonds”. All those investors were chasing yields. And without a doubt poured that money into bond (mutual) funds. This is – IMO – another sign of the bond bubble our TPC doesn’t believe in. Once interest rates are moving higher and prices are going lower things WILL get REALLY ugly. Then we’ll get HYPER-Deflation !
It’s not that mutual fund mangers are bullish, they simply are forced to invest that money into something. And they see yields go down and prices go up so the (bond mutual) fund managers are – IMO – effectively chasing each other. That’s the nature of their game. Excellent contrarian signal to go the other way, into (very short maturity bonds (e.g. T-bills)).
At least take the time to read the chart.
The title says STOCK mutual funds.
Ooops. You’re right.
But low yields on bonds could be the reason that people are drifting back into stock mutual funds. And that forces the fund managers to buy. And don’t forget that interest rates on CDs and money market funds are very low, as well.
The cash on the sidelines belongs to the baby boomers and they are not investing in stocks.