Rising stock market volatility and the 7% crash in Shanghai-listed stocks twice in one week has put fund managers around the globe on the defensive.
In the U.S., the first trading session of 2016 began with a bang: The Dow Jones industrial average (INDU) posted its worst one-day performance of the new year since 1932, losing -2.2% in value. By the end of the first week of 2016, the Dow was off 6.4% and the S&P 500 (SPY) was down 4.8% in the worst first five-day start of trading in a new year on record.
As a result of these developments and nervousness about an aging bull market, certain fund managers are choosing to hold a larger cash cushion inside their portfolios.
The FPA Crescent Fund (FPACX) is one example of an actively managed stock mutual fund with lots of cash.
According to the most recent third-quarter Morningstar data, the $18.9 billion fund allocated roughly 35% to cash, 43% to U.S. stocks, 10% to international stocks and 10% to bonds. By comparison, the average percentage allocated to cash for U.S. long equity funds is just 4%.
To explain FPA’s approach, the company’s website says, “We aim to protect capital first and create long-term equity-like returns second. We cannot eliminate risk, but we conduct ourselves by hoping for the best, while preparing for the worst.”
On the extreme side, fund managers at the Intrepid Endurance Fund Investor Class (ICMAX) are in love with cash.
Although the fund is classified as a small-cap value fund by Morningstar, it has a whopping 68% invested in cash and just 16.% allocated to stocks.