Originally posted at Cake Financial.
In a previous post, I mentioned that the Class Z shares of Mutual Discovery have an embedded premium to other classes. (More than what is reflected in the NAV.)
HOWEVER, the fund is carrying 22% cash. That is similar to other funds mentioned in a Wall Street Journal story on Tuesday called “The Bearish Strategy: Cash and Parry.” These include the esteemed FPA Capital Fund (40%), Yacktman and Yacktman Focus Fund (25%), and Fairholme Fund (20%).
I can understand manager temerity with cash, particularly in a volatile market like this. They don’t want to be fully invested, having some dry powder for good opportunities. Yet, isn’t 20% to 40% in cash a little too bearish?
This brings up a fundamental question facing fund managers today: Are they asset pickers or asset allocators? Holding more cash lowers their beta, but I don’t think that’s really worth the expense ratio of some of these actively managed funds.
When cash is that high, I would expect at least an expense ratio reduction relative to the cash balance. There’s nothing I hate more than watching someone make easy money…especially when it’s on my dime.
