Cash helping U.S. fund managers, even as they look to spend it

[October 01, 2015]  By David Randall

NEW YORK (Reuters) - Stock mutual fund managers who tucked extra cash under their mattresses this year have fared well: Protected from the worst of the recent selloff, they have generally outperformed their competitors and now, with shares near 2015 lows, are readying a new round of buying.

Managers such as Sean Gavin of the $437 million Fidelity Blue Chip Value Fund, who recently held 9 percent of his portfolio in cash, and Robert Bacarella of the Monetta Fund, with 6 percent in cash, are pulling out shopping lists full of consumer companies and other beaten-down names.

“Six months ago it was much harder to find appropriate returns, but now I’m starting to find incremental buying opportunities that weren’t there before," said Gavin. He is looking at consumer discretionary and healthcare companies, he said.

Bacarella said he is adding to his shares of Walt Disney Co, which have fallen nearly 12 percent over the last 3 months.

Brian Massey of the Mar Vista Strategic Growth Fund had increased his cash hoard tenfold, from one percent to ten percent of his portfolio, and now is building his position in companies like Honeywell International Inc, Mondelez International Inc and PepsiCo Inc, whose share prices have been hurt by concerns about growth in China and other emerging markets.

“We’re starting to find more attractive returns for the risk we’re willing to take,” he said.

Over the last six months a deep decline in the Chinese stock market, collapsing oil prices and concerns about global economic growth have pushed the trailing price to earnings ratio of the S&P 500 down to 17.1 from 19, making stocks less expensive though still not cheap by the index's long-term average of around 15, according to Thomson Reuters data.

As a group, large cap stock funds have been holding roughly 3 percent of their portfolios in cash. But the 51 funds who have been holding more than 5 percent, typically so-called value funds that focus on older companies rather than faster-growing competitors, have been beating their peers by nearly one percentage point this year, according to Lipper data.

That hasn't worked out for everyone. The $9.7 billion Yacktman Service Fund is down 4.1 percentage points more than the S&P 500 for the year to date despite having 17.7 percent of its portfolio in cash, mostly as a result of large positions in Twenty-First Century Fox Inc and Viacom Inc that have fallen by 30 percent or more this year, according to Lipper data. The firm declined to comment for this story.

At 44.6 percent of assets, the $28.3 million Port Street Quality Growth fund has the highest amount of cash among large-cap funds, according to Lipper data. That cash pile has helped offset declines in 9 out of its 10 largest holdings for the year to date, helping it to beat the S&P 500 by 3 percentage points over the same time. The firm did not return requests to comment for this story.

Massey's $20 million fund is beating the S&P 500 by nearly 3 percentage points this year, while Gavin's fund, down 5 percent year to date, is doing roughly 2 percentage points better than the S&P 500.

Bacarella's $50.5 million Monetta Fund is outperforming the S&P 500 by 2.6 percentage points this year. He doubled his usual 3 percent of portfolio cash earlier this year, but doesn't expect to keep it that high.

"We're not being paid to hold cash. We're paid to be equity investors and that's what we want to be," he said.

(Reporting by David Randall; Editing by Linda Stern and Meredith Mazzilli)

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