5 Cash-Heavy Funds for the Cautious Investor
Cash is not trash.
Following up on my theme of downside protection, I've gathered a few funds with big cash stakes that you might want to give a second look.
Funds with big cash stakes can lag in rallies, but I wouldn't pull the trigger on a good fund just for a bit of a slump. Funds with big cash stakes can do wonders in a downturn. But it goes beyond the cash stake itself.
Cash holders have an extra level of choosiness about their stocks and a wariness of losses that is reflected in the way the rest of the portfolio is run. It also is something that can be put to use in sell-offs, though I wouldn't go so far as to expect these managers to time their purchases perfectly.
FPA Crescent (FPACX) is a prime example. Steve Romick has an awesome track record with great returns despite copious amounts of caution. The fund has 44% of assets in cash today. With 21 years at the helm, you can trust that Romick knows what he's doing. Romick's a careful stock-picker who will make some unusual investments if he sees an opportunity. The fund has invested in a California mall and even container ships--not companies that own a mall and container ships but the actual things. Those are small parts of the fund that will have only a tiny impact on performance, but it shows how creatively he approaches investing. The fund's top holdings are more conventional value plays such as Microsoft (MSFT), Oracle (ORCL), CVS Health (CVS), and Aon (AON).
Wally Weitz lives in Omaha, Nebraska, and he tries to invest like fellow Omahan Warren Buffett. So, it's no surprise that Weitz Partners Value (WPVLX) and Weitz Hickory (WEHIX) are sporting cash positions of 25% and 20%, respectively. Wally Weitz and comanagers Brad Hinton and Andrew Weitz sold into the market rally in the first half of 2014, giving the funds a big pile-o-cash. But they'll reinvest only where they see stocks trading at sizable discounts to their estimates of intrinsic value. They put cash to use wisely after the market dip in 2011 and the market free-fall in 2008.
Third Avenue Real Estate Value (TAREX) managers Michael Winer and Jason Wolf hold cash in a category where nearly every fund is fully invested in an attempt to maximize yield. Specifically, cash has risen to 16% recently. They emphasize capital appreciation and preservation over income, however. They are very stingy about spending money on stocks that look pricey, so they let cash build. They also tend to invest in real estate operating companies rather than REITs because such companies can reinvest in property, and they also tend to trade at more-modest valuations than REITs. We give the fund a Morningstar Analyst Rating of Gold.
GoodHaven (GOODX) is probably the least popular of the cash-builders on this list because management hasn't built up the good will that comes from great long-term returns. Their 19% cash stake is only one of the reasons that Larry Pitkowsky and Keith Trauner have had a slow start. An influx of new money in 2013 led them to invest slowly in what turned out to be one of the all-time great rallies. Cash has come down some since then, but a couple of big holdings, Walter Investment Management (WAC) and Ocwen Financial (OCN), have gotten crushed. Still, we think their process has merit and we rate the fund Bronze. Give yourself extra contrarian points if you buy this fund. Note: They list 19% in cash, but we put it in "other."
|Want to hear more from the mutual fund experts? Subscribe to Morningstar FundInvestor for exclusive research, coveted analysis and proprietary ratings—neatly packaged and delivered to your inbox.||One-Year Digital Subscription |
12 Issues | $125
Premium Members: $115
Russel Kinnel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.