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