I Own What?! Some Growth Funds Stash Cash Under the Mattress

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Peek inside some tech-sick growth funds and you'll find they're a lot like your average bag of potato chips: Yes, there are stocks, but there's a lot of air too.

The average big-cap growth fund rode the sizzling tech sector to a more than 41% gain in 1999 and a more than 41% loss over the past 12 months, according to Chicago fund-tracker Morningstar. Tech titans like Cisco(CSCO Quote) and Sun Microsystems(SUNW Quote) have lost more than three-quarters of their value over the past year; the tech-laden Nasdaq is off 60% over the same stretch. Consequently, you might think some fund managers are letting their cash pile up, rather than buy stocks in a market that's pleasant as puberty. This week's I Own What?! is zeroing in on a few of these funds.

We sifted the big-cap growth-fund pack, looking for a handful of funds with at least 15% of their money in cash, about triple their average peer's cash stake. We yanked out funds with less than $200 million in assets and any whose portfolio data were older than June 30. The exercise turned up two Janus funds, leading us to dig up some other stock-light stock funds among the Denver firm's lineup.

Stocks, Riiiiiiiiiiiiiiiiiight These five big-cap growth stock funds don't seem so jazzed about owning stocks
Large-Cap Growth fund	Cash Position	One-Year Return
(FKDNX Quote)Franklin DynaTech	53.9%	-34.0%
(JAVLX Quote)Janus Twenty	28.4	-52.8
(OPSBX Quote)Oppenheimer Growth	27.3	-49.8
(JCGCX Quote)ASAF Janus Capital Growth	22.6	-50.4
(AMOBX Quote)Morgan Stanley American Opportunities	15.0	-36.2
Avg. Large-Cap Growth fund	5.4	-40.9
Cash positions as of most recent portfolio report. Returns as of Sept. 6. Source: Morningstar

On one hand, it seems sensible for a stock-fund manager to head to the sidelines in markets like this one, though the average stock fund's 5.6% stake at the end of July was below the past 10 years' 7% average. But a significant cash position also raises tough questions.

As you can see, these funds' outsize cash stakes haven't kept them from soaking in red ink, though two have lost less than their peers. And if we're to believe mutual fund brochures and conventional wisdom, timing moves into and out of stocks is at best risky and at worst a fool's errand. If these funds still have fat cash positions whenever stock prices start trudging north again, they'll be left in the dust.

Also, a stock fund that flits in and out of stocks can be tough to shoehorn into your portfolio because your exposure to stocks, bonds and cash can shift dramatically without your knowledge. The point here is that you buy a stock fund for exposure to stocks, not money market instruments.

To be fair, some funds traditionally keep a big cash position.

The odd (FKDNX Quote)Franklin DynaTech fund, for instance, tends to split its portfolio between tech stocks and cash. Over the past three years, leader manager Rupert Johnson has had 45% of the fund's money in cash and about 40% in tech stocks, according to Morningstar. The unique fund seems to offer investors a slew of sector risk, but also the risk of not participating fully in any tech-led rally. Classified as a big-cap growth fund, it has trailed its average peer in three of the past four years.

There are other funds, however, that aren't typically so cash rich. The (JAVLX Quote)Janus Twenty fund's 28.4% cash bulge more than triples its average cash position over the past three years. Having two Janus funds on the list, both run by Scott Schoelzel, led us to look at the cash stakes among Janus' growth-heavy fund roster. We found a range, but within that range are a bevy of funds carrying big cash stakes.

Janus lists its direct-sold funds' cash positions through July 31 on its Web site. If we focus on the 16 funds that are at least one year old, we find that half at least double the average U.S. stock fund's 5.1% cash position.

Some Deep Pockets in Denver Half of Janus' direct-sold stock funds with at least a one-year record have more than 10% of their money in cash
Janus fund	Cash Position	One-Year Return
(JAVLX Quote)Twenty*	28.4%	-52.8%
(JORNX Quote)Orion	22.2	-48.5
(JAGTX Quote)Global Technology*	14.4	-67.5
(JAMRX Quote)Mercury	13.3	-48.1
(JAOSX Quote)Overseas*	12.4	-42.3
(JAWWX Quote)Worldwide*	11.7	-40.7
(JABAX Quote)Balanced	11.3	-10.9
(JAOLX Quote)Olympus*	10.6	-52.9
(JAGIX Quote)Growth & Income	9.8	-28.3
(JAEIX Quote)Core Equity	9.1	-21.0
(JAGLX Quote)Global Life Sciences*	4.3	-17.9
(JASSX Quote)Special Situations	3.9	-36.4
(JANSX Quote)Janus*	3.7	-42.2
(JAENX Quote)Enterprise	2.9	-61.3
(JAVTX Quote)Venture*	2.9	-48.3
(JSVAX Quote)Strategic Value	2.1	-17.8
Avg. U.S. Stock fund	5.1	-22.2
S&P 500	N/A	-24.3
Cash stakes as of July 31. Returns through Sept. 5. *Closed to new investors. Source: Morningstar

Given that many of these funds are sitting on big cash stakes, some might wonder if the firm known for its big tech appetite isn't seeing a rebound anytime soon. But the range of these funds' cash positions and the implied range of opinions among their managers argue against any sweeping conclusions.

Yes, the Twenty fund is sitting on far more cash than usual, but the Janus fund's 3.7% cash position is in line with its average over the past three years. And the Jim Goff, manager of the (JAENX Quote)Janus Enterprise fund, slashed his cash stake from 12% on April 30 to just 3% on July 31.

David Corkins, manager of the (JAGIX Quote)Janus Growth & Income fund, which had a 9.8% cash position on July 31, addressed the cash question recently in part of an interview. (The following section didn't appear in the published transcript.)

"I'd probably let you talk to those individual guys in terms of their strategy," he said. "There are some portfolio managers who use it as an incentive tool if they think that the overall market is declining, but I'm not one of them."

The bottom line is that some managers aren't shy about timing moves in and out of the market. Whether you're a fan of the tactic, make sure you know if it's in a manager's repertoire.