Cash as a Percentage of Mutual Fund Portfolios

Cash as a Percentage of Mutual Fund Portfolios (2000)

Source: Investment Company Institute

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Assets in Money Market Funds Mutual Fund Inflows/Outflows

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Cash sitting in mutual fund portfolios fell in the latest period, according to figures released late Tuesday from the Investment Company Institute. Cash as a percentage of mutual fund holdings fell to 5.8% in December, down from the three-year high of 6.5% set in November.

With the market moving higher in January, cash levels should continue to come down. Indeed, the large amount of cash that was built up over the last several months has no doubt helped prop stocks up since the beginning of the year. With the Fed now on the side of investors, portfolio managers will probably continue to deploy cash into the markets.

Why This Metric Matters This figure shows the percentage of assets under management that equity mutual fund managers have in cash or cash equivalents like money market funds. When this number rises, it indicates that money managers are growing cautious. That's typically bad news short term -- as money managers are reluctant to spend that cash on equities. But it's often seen as a positive for the market looking out a little further, as managers can be expected eventually to use that cash to load up on stocks. So, short term, rising cash levels can be seen as a negative. Longer term, it's a potential positive. Consider this: In October 1990, cash levels reached nearly 13%. The market rallied sharply right after that: The S&P 500 bottomed that month but was trading almost 30% higher within a year. In March 2000, cash levels reached their lowest levels of the decade, just as the Nasdaq and S&P 500 reached their all-time highs. Since then, the indices have fallen and cash levels in mutual funds have begun to rise.

How Often Updated on TSC Monthly, near the end of the month for the prior month

Historical Info The Investment Company Institute has been tracking this particular metric since 1970. During the '90s bull market, this metric recorded a high of 12.9% in October 1990. Its lowest point from the 1990s forward came in March 2000, when it sank to 4.1%. (See this related story for more historical info.)

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