Cash in mutual funds has hit its highest levels in three years, according to the most recent figures from
Investment Company Institute
. Cash as a percentage of mutual fund holdings rose to 6.5% in November, up from 6% in October and 4.1% in March, during the market's peak. Cash levels haven't been this high since November 1997, when they also hit 6.5%.
The growing level of cash in mutual fund portfolios is likely the result of two things: one, fund managers are taking a more defensive stand. And two, managers have been squirreling away cash to meet possible investor redemptions during the market downturn. The rising level of cash is a short-term negative, as fund managers are reluctant to put more money into stocks. But it's a potential long-term positive, as managers may put the money back in stocks eventually.
Cash as a Percentage of Mutual Fund Portfolios, 2000
Source: Investment Company Institute