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Cash Levels in Funds Rise to 6.5%, TrimTabs Says

It's the highest level since November '97. Does it portend a future rally?

Cash is king with U.S. stock fund managers.

A Monday report from liquidity tracker

TrimTabs.com

estimates that at the end of October, U.S. stock funds' cash stakes were at 5.5%, up from 5.1% at the end of September. The report also asserts that as of last Wednesday, the average stock fund's cash stake was at 6.5% -- a level not seen since November 1997. If the firm's estimates are accurate, U.S. stock funds have taken in some $122 billion in fresh cash since March 31, but nearly half that money has gone into cash.

The upshot: As U.S. stock fund managers sold stocks and banked checks from investors, they haven't been in any rush to put that money to work in a sagging market. That may portend a strong rebound for stocks once fund managers decide it's time to plow that money into the market, but if and when that time arrives is anybody's guess.

"I think a rally will have to happen for the money to come back," says Charles Biderman, president of TrimTabs.com. "These guys will jump in then because they'll be afraid to miss it, and they don't want to show this amount of cash at year-end."

While most stock fund managers routinely say their mandate is to be "fully invested" in the market, many market and fund-industry observers have noted that cash levels have been on the rise. These figures bear out those suspicions.

While these liquidity figures are just one part of a broad market picture, they are intriguing indicators. Money managers' whims are typically worth noting, not just because they represent the "smart money," but also because their billions of dollars can move the market.

Hard to say how much fund managers' reluctance to buy stocks has contributed to the market's downdraft, but their reluctance, a slowing economy and the presidential election's contested results haven't helped.

Since March 31 the tech-laden

Nasdaq Composite has fallen more than 36%, and the

S&P 500 is off more than 10%, according to

TheStreet Recommends

Baseline

. For the year the average large-cap growth fund, the largest U.S. stock fund category, is down 15%, and the average tech-sector fund is down nearly 28%, according to

Lipper

.

While the fund managers' tepid attitude toward stocks is hardly good news, it could lead to a sharp and lasting run-up down the road. If managers' fears regarding the election and economic slowing are quelled, that money could boost stocks in a hurry.

When stock funds' cash positions last hit 6.5% following the Asian economic crisis three years ago, the S&P 500 and Nasdaq Composite posted 24.8% and 26% gains, respectively, during the next 12 months, according to Baseline.

TrimTabs.com's estimates won't start to be confirmed until Wednesday, when the

Investment Company Institute

releases its broad statistics on the industry's cash flows and cash position through the end of October.

There is evidence that TrimTabs.com's data is on target, though. The average U.S. stock fund's cash position was at 5.3% through Oct. 31, according to

Morningstar

. And the average mid-cap growth and small-cap growth funds' had cash stakes over 6%.

Fund managers aren't the only ones who have favored the cozy, safe havens of money market or cash investments recently. In October, individual investors stuffed some $27 billion into money market funds, compared with an $8.1 billion inflow to stock funds, according to Lipper.