How ugly is this market? Stock pickers aren't even picking stocks these days.
Slackening economic growth and corporate profits -- not to mention the uncertainty over who's going to get the keys to
1600 Pennsylvania Ave.
-- are giving growth and tech stocks a real hiding. Since its March 10 peak, the
is down nearly 50%. Even after a strong start to the year, the average tech fund is down almost 30% since Jan. 1 and the average big-cap growth fund is off more than 14% since Jan. 1, according to
Typically, most stock fund managers, particularly growth fund managers, reject the idea of holding a big cash position to wait out a lousy market. Rather, they usually say they try to stay "fully invested." And at the end of last year when everything seemed to be going up, the average stock fund's cash level fell to 4.2%, its lowest level in some 30 years, according to liquidity tracker
Now we're seeing the opposite as fund managers are letting cash pile up rather than putting it into a sagging market. On Oct. 31, the average stock fund's cash stake hit 6%, according to the
Investment Company Institute
, the mutual fund industry's trade group. That's up 13% from a month earlier and the highest it has been in three years. By TrimTabs.com's math, cash is currently at around 6.5% of the average stock fund and about half the money invested in funds since the end of March is currently sitting in cash.
So, this week the Big Screen sifts the fund world to see which growth funds are currently carrying big cash stakes. We looked for funds with more than $250 million in assets that get a growth label from Morningstar and have more than 15% of their assets in cash -- a 5% stake is typically seen as average. We turned up 13 funds and here they are, ranked by their fat cash stakes as of their most recent portfolio reports -- none of which was older than Sept. 30.
Keep in mind that big cash stakes are often a sign that the market is about to turn around. After all, when managers decide to put those billions of bucks back into the market, they can send stocks north in a hurry. Over the last two years, for instance, whenever cash stakes have risen more than 9% from one month to the next, stocks have posted positive returns over the next 90 days, according to TrimTabs.com.
Then again, since cash stakes aren't much higher than the 5% historical average, there's no guarantee that fund managers are planning to put much of that money back into the market, even if the economic picture brightens and we eventually figure out who won the election.
Either way, it's intriguing to see if a fund firm or manager isn't too excited about the market.
The most intriguing pattern on our list is the big cash stakes with two broker-sold large-cap growth funds run by Janus fund managers --
ASAF Janus Capital Growth, with 23.5% of its money in cash, and
WM Growth, with 17.5% of its money in cash. These two funds are run by
Janus Twenty fund manager Scott Schoelzel and
Janus Mercury fund manager Warren Lammert.
In fact, after consulting Janus' snazzily redesigned
Web site, there's more evidence that the firm's managers aren't in any rush to put their shareholders' money into this market. At the end of the third quarter, many Janus funds had high cash stakes, including Janus Mercury (19.8%), the six-month-old
Janus Orion (16.3%),
Janus Growth & Income (14.4%) and
Janus Equity Income (16.9%).
Even funds that are closed to new investors have big cash positions, like
Janus Overseas (12.4%), Janus Twenty (9%) and
Janus Worldwide (8.4%).
The apparent reluctance of some Janus managers to buy stocks is big news, because the firm is known for its commitment to growth stocks. Last year its stock funds rode big tech and telecom stock stakes to an average 81% return, while this year all but one Janus fund is underwater, according to Morningstar.
It's also interesting to see high cash stakes at tech funds like
Waddell & Reed Advisor Science & Technology (22%),
BlackRock Global Science & Technology (18%) and
Dresdner RCM Global Technology (15%). These funds were launched to focus strictly on the tech sector and it doesn't look as if they're necessarily seeing a lot of opportunity in their chosen field.
That said, these cash stakes are dated and don't mean these funds' managers aren't buying stocks with some of their cash right now.
Before we go, don't read too much into that whopping 45% cash position for broker-sold
Franklin DynaTech, which is unique as growth funds go. Rupert Johnson has run the large-cap fund since 1968 (co-manager Robert Dean joined him this year) and he often sits on a big cash position. Johnson focuses on companies that are improving their productivity and that's often led to big tech and health care bets.
He balances out those sectors' volatility by routinely keeping 30% to 50% of the fund in cash. So his big cash pile, unlike these other managers', isn't necessarily out of character.