Investors in Cash-Heavy Funds Missed Blockbuster Stock Returns
The stock market had another record year in 1996, but some mutual fund investors may have unknowingly missed the action.
Instead of investing in stocks, some funds kept as much as half their assets in cash, producing little or no return for investors who thought they were putting their money to work in the stock market.
Advisor Software Inc. identified the 10 most “cash-laden” mutual funds. These ultraconservative funds held the equivalent of as much as 52% cash for the five years ended Nov. 29, Advisor projects.
For example, you may have bought into a small-cap fund, such as the Scout Regional Fund, expecting it to chase returns on small growth companies. But its performance indicates it has had 52% of its portfolio in cash equivalents and the balance in stocks.
The result is a year-to-date return of 11.47% through Dec. 12, making it 300 out of 372 funds in the small-company category as ranked by Morningstar Inc., the Chicago-based fund-rating service.
Some fund managers disagree with Advisor Software’s conclusions.
David Anderson, manager of $40.8-million Scout Regional and an admitted bear, said, “We think it’s an expensive market, and we’re holding [cash] for a pullback,” but he said the fund never has had more than 25% in cash. He said that as of last week, his fund had 83% in stocks.
Another fund on Advisor’s cash-laden list is General Securities, an asset-allocation fund. It usually has 46% of its $38.3 million in cash and the balance in equities. It had a return of 18.6% over the last year.
Also on the list is the Nicholas Equity Income Fund. With $16.8 million in assets, it’s categorized as an equity-income fund, though it is usually 46% cash and the balance in equities. It had a 17.97% one-year return.
Other funds on the list:
* The Rightime Fund, a $169.1-million fund of funds, is usually 44% cash. The result has been a return of 9.9% over the last year.
* Gateway Trust Index Plus, a $173.5-million fund, is in Morningstar’s growth-and-income category, but Advisor said it’s usually about 52% in cash.
* Merriman Investment Trust, a Seattle-based fund family, has two funds on the list: its Investment Trust Asset Allocation and Investment Trust Growth and Income. They have combined assets of about $29 million and both are about 52% cash.
* The BT Investment Lifecycle Short Range Fund; 45% cash and a one-year return of 10.5%.
* The Carillon Investment Trust Capital Fund; 44% cash and a one-year return of 15.18%.
* The First American Investment Equity Income fund; 44% cash and a one-year return of 20.73%.
