“When you look at valuations today, to go back to a normal valuation the market would have to fall by more than half,” says fund manager Stephen Yacktman, whose $8.5 billion fund has more than 25% of its assets in cash. This according to a recent Barron’s article.
But Yacktman says the cash holdings are not a ploy to mitigate risk—the article refers to him as one of a “dying breed of active managers who hold cash as part of their valuation discipline.” The article quotes an explanation by Morningstar’s Russel Kinnel: “Managers used to hold cash to handle redemptions, but now they can use exchange-traded funds as a liquidity tool—making the decision to hold cash more about investing strategy than fund administration.”
Kinnel says that a money manager won’t typically admit they’re timing a market correction, but that there’s an “implicit market call” when a manager builds cash reserves as a result of few opportunities. For the week ended Feb 10th, the article says, when the S&P 500 dipped by 5.2%, “78% of these cash-heavy funds beat their peers.”