One of the surest ways to cushion your portfolio against a stock market plunge is to hold assets in cash. But if you shift to—or stick with—cash at the wrong time, you miss the possibility of further gains in the stock market, which hit record highs recently. So you might want to depend on mutual fund pros to decide when—and to what degree—to turn to cash and then when to shift assets back into the market. Some of the best fund managers have been good at doing this.
It’s not that the fund managers try to exactly time the ups and downs of the market. Instead, they follow a disciplined approach of investing in stocks only when stocks clearly are at bargain prices. If no stocks meet the managers’ stringent criteria, they allow cash to build, even if that means their fund performance lags the overall market for years at a time until buying opportunities emerge.
My favorite cash-heavy funds…
Yacktman Fund (YACKX) has 20% of its assets in cash, the highest level since 2008, an indication of how few undervalued large-cap stocks there are that meet fund manager Donald Yacktman’s criteria. The fund’s performance is in the top 1% of its category over the past five years, gaining an annualized 16.6% versus 8.3% for the Standard & Poor’s 500 stock index.
FPA Crescent (FPACX), which can invest in a mix of stocks of all sizes and bonds too, has steadily increased its cash holdings over the past five years. Cash now totals about one-third of assets as a result of fund manager Steven Romick slashing his bond holdings but maintaining about half of the portfolio in stocks. Over the past decade, the fund gained an annualized 9%, outperforming the S&P 500 by an average of about 1.5 percentage points a year with one-third less risk.