Mutual Funds Cash Levels

When a few people email the same question, it makes me wonder what the basis of the story might be.

Yesterday, several emailers noted that Merrill Lynch reported Mutual Funds have the highest cash position ever.  While it is true that Mutual Fund Mangers have been rather bearish as of late, its not reflected in their cash levels.

Have a look at this 10 year chart:
click for larger graph


Source: Market Gauge

The stock market needs cash to fuel a rally — and this shows the cash level at about 4.5% — hardly a bullish amount of uninvested dollars.

The 2nd chart goes back to 1968, and attempts to correlate Mutual Fund lows with Market tops.

Note that we haven’t seen a 10% level in mutual fund cash since
1990. Its part of the reason why I don’t buy the thesis that sentiment
is so negative that we are about to start a multi decade Bull run.

S&P500 versus Mutual Fund Cash

Click for larger chart

Source: RoyAshworth


Ashworth notes that the "June 2006 level was 4.2% compared to 4.2% in May 2006. Stock funds posted an outflow of $8.40 billion in June, compared with an inflow of $3.16 billion in May. The current situation is starting to look like the 1972-73 period where cash levels stayed in the 4 -5% level as prices moved higher before the severe decline in 1973-74."

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  1. ss commented on Aug 16

    Sure Barry, but put up a chart of cash and short term securities outside of MF’s…quite a diferent picture.

    I believe it’s close to the entire value of the Wilshire 5000.

    BR If I wanted to put up a chart of short term securities, I would have. This is mutual fund cash.

  2. ss the asshat commented on Aug 16

    I used to believe in evolution but now am convinced otherwise. Nothing so blatantly stupid as the asshat could survive evolution.

  3. eightnine2718281828mu5 commented on Aug 16

    put up a chart of cash and short term securities outside of MF’s

    So…you’re following the smart money?

    And you’re presuming this money will come roaring into the market just as the economy slows, pushing us to new highs?

  4. Bob_in_MA commented on Aug 16

    It seems likely that since the early 90s this is just illustrating a secular shift as mutual funds have been pressured to more closely follow their respective targets. It’s a lot eassier to move money from one fund to another now and there is probably a much greater cost paid by a fund missing a rally because of poor market timing, vs. following the market down.

    Another factor is almost certainly the rise in index funds, which usually are less than 1% cash.

  5. Blake Barron commented on Aug 16

    I have been reading this in several places. Most recently in a report titled “The Blue Report” and a couple of other global macro pieces floating around.

    Anyone know how to monitor this metric on a shorter time frame?



  6. T commented on Aug 16

    Even if it’s the result of funds being pressured to reduce their cash holdings, it’s still counter evidence to the theory that they have huge cash reserves out there just waiting to surge back in to the market. Unless you believe that a large portion of 401 investors have moved their funds to fixed-income funds (and now will rush to swing their allocations back to equities) the idea of the “big money” coming back in to drive a huge rally doesn’t quite work.

  7. JP commented on Aug 16

    While I am bearish and agree with your comment here, it must be noted that mutual funds over the last decade have changed their mandate to allow for futures and options to hedge their portfolios which would account for them not needing as much cash on hand.

  8. pkts commented on Aug 16

    Dang, don’t show my homey SS that chart! There’s a lot of money waiting on the sidelines! Thats why volume on this run has been so anemic.

    SS must be talking about some other “money” waiting on the sidelines. He must have a secret source.

  9. ss commented on Aug 16

    Mutual funds aren’t paid to manage cash. I know you’ve heard the old saying..time in the market, not timing the market. Missing days like the last few are a quick way to end up in the 5th quintile for a fund. I recognize that a hedgie like you can make that up easily with leverage and options…but they can’t.

    Will this comment get blacked out as well? Counter points are irrelevant, or unwelcome?

  10. ss the asshat commented on Aug 16

    Maybe if you weren’t so dim-witted, you’d realize these strong few day rallies are more prevalent in down market hence they have no material effect on your asshatted statement of missing them. ie, Because you missed violent rallies in 2000-2003 does that mean you would have been better off staying through an 85% decline. Once again, an asshatted statement.

  11. ss commented on Aug 16

    If you think this is a down market, you need to turn your $&P chart “right side up”.

    I strongly suggest you stay in cash.

  12. Mark commented on Aug 16


    I don’t think you were blacklined for making a contra-argument. Backed up with facts, those are welcome. You were balcklined for “snarking” the host. He can post what he wants. If you want to show a different chart, do it. But don’t accuse the host of hiding statistics, being selective, etc –and do it in the manner you did–and expect that everyone is going to treat you graciously. But I kinda think all this is over your head.

  13. angryinch commented on Aug 16

    Gee whillikers, SS, the Spoozer is up a whopping 3.5% this year. The Dow is up 4%. The Nadsaq is down 6%. The majority of stocks are underwater this year. And when this bogus rally finishes in the next week or three, no doubt we’ll be heading south with gusto yet again.

    Cash has outperformed yet again in 2006. Like it did in 2000, 2001, 2002, 2004, 2005. Why change horses now?

    I recommend investors stay away from this market with a 10-foot pole. The crooks are picking folks clean who are gaming faux breakouts and faux breakdowns within a trade-ranging market. Wait for a real breakout or serious breakdown. Don’t play with Mr In-Between.

  14. ArizonaChartist commented on Aug 16

    Surprised I haven’t yet seen anyone mention that IBD said yesterday was a follow-thru day for the Naz. As per IBD, not every follow-thru has resulted in a rally but no rally has ever started without a follow-thru.

    I’ll remain a bit skeptical myself until I see the OTC Bullish Percent rise back into X’s but I do like the field position.

  15. traderb commented on Aug 16

    see for a good article on why “cash to come into the market” is maybe not important…in that for everyone spending X to buy stock, someone else is receiving X…so no NET cash goes into the market.

  16. S commented on Aug 16


    Up volume exceeded down volume 4:1 on over 2.4B shares traded on a lazy summer day.

    The SOX is up almost 8% this week on strong volume and breezed past the 50 day.

    Dell, HD and the homebuilders are all moving up on bad news.

    Who knows what tomorrow will bring, but those aren’t bad conditions in which to be positioned bullishly on a short term basis, IMO. Good luck.

  17. j d ess commented on Aug 16

    bullishly on a short term basis

    “Short-term”? dude. could you define your term there? cuz… i think that’s what barry has been saying for months. basically summer mini-bull into autumn bear. he then lays out the longer term case in most of his posts. hey, are you two on the same team afterall? or are you just leavin’ yourself a little wiggle room?

  18. j d ess commented on Aug 16

    woop. sorry S, i read ss… my bad.

  19. Craig H commented on Aug 16

    Like I said, watch the heavy strikes this week, everything else is just noise. DELL, HD, even the homies, are gravitating around the open interest heavy strikes. The real test of this market is what it does in September.

    When they want to take it down, it’s easy enough – just change the focus from “benign” inflation (ha!) to slowing growth. It’s a ready-made excuse waiting in the bullpen.

  20. Sherman McCoy commented on Aug 16

    Barry- That “Mutual Fund Cash Levels” chart was really confusing. Focus is immediately drawn to the red lines indicating 8% and 10% levels, and so you expect these lines to have some relevance to the data points in question. It took me a while to figure out that the data is all below the 8% mark. Also the data points are presented on such a wide vertical axis range that they only fill up maybe 20% of that range- that makes it difficult to see variations and correlate them with the S&P values in the lower portion. I think the point you are trying to make is that 8% is normally considered the indicator of low cash level and we’ve been far below that for a long time. The chart as it is tends to lead the reader towards other conclusions. Or maybe I am missing something?

  21. snook commented on Aug 16

    Maybe we should try and account for cash held in hedge funds; leveraged hedge funds, rather than mutual funds that might try and be more invested.

  22. albiegf13 commented on Aug 16

    I’m just keeping my eye on the dollar right now… I think that it will speak volumes over the short term… If we’re finding equilibrium in terms of inflation, the dollar should hold steady and so far, after the change in Fed Policy, that’s not the case…. But let’s see, time will tell.

    Still short S&Ps (that’s what I tell my dog “THE BUG” to do “S&P”, spin and poop) and feeling a little pain. However, not too bad.. Comfortably long gold lots of $$$$$ “dry amo”. ;-)

  23. snook commented on Aug 16

    It might also be interesting to look at how mutual funds are compensated vs. hedge funds, generally speaking…correct me if i am mistaken. % on Performance vs. % on amounts invested. So, if I were a hedge fund manager and happened to be up 20-30% by the end of Q1….I might think about building some cash and protecting my (excuse me, our) profits.

  24. me commented on Aug 16

    Isn’t a lot of “the cash” going into foreign ETFs? How does that raise the US markets?

  25. andre commented on Aug 16

    ‘The Blue Report” mentioned it as well. But the purpose of these Mutual Funds is not to manage cash!

  26. snook commented on Aug 16

    I think I know where all the cash is….those 15000 car freaks in Carmel this week have it all….and it’s all going into cars, not stocks…(don’t think too seriously on this). I’ll be there trying to make some correlations re: the car auctions and the ‘other markets’.

  27. financialrx commented on Aug 16

    talk to an honest PM and they will tell you they do everything in their power to keep absolute bare minimum cash e-v-e-r-y single day:

    a) market goes up, they win.
    b) market goes down… market’s fault (Geo Bush’s fault, Terrorist’s fault, Chinese Yuan’s fault, whatever).

  28. NotBlue commented on Aug 16

    Someone may have mentioned this already, but I believe the reference to the Merrill Lynch report is the monthly global fund managers survey. What it shows is that a net 33% of the 300 or so fund managers polled are overweight cash, the highest level ever seen in this particular survey. I have no idea for how long ML has been doing this, nor do I know how well this has worked as a contrarian indicator in the past…

  29. BSI87 commented on Aug 16


    I read IBD. I have no freaking idea where they got yesterday as a followthru day. Before yesterday, it was like day 17 of an attempted rally. Tonight it sez we’re in a confirmed rally. Granted the mkt has rallied hard in a couple days but normally IBD sez wait for day 4-10 to confirm on heavy volume. With the VXN reversing today and the 10 DMA P/C down 20%, this could end as quickly as it started.

    And IBD reminds me of the guy who’s at the rear of a parade, then runs to the front to say he’s leading.

  30. andiron commented on Aug 16

    barry’s follow thru – as per O’ Neil – action has been exibited by the market…and yet barry is not convinced…he starts blaming autos then denims…what gives?
    could it be that market is waiting for the last bear (barry) to throw the towel in before seriious decline begins.
    Of course, i am all in cash.

  31. Royce commented on Aug 16

    Seems like what the first chart tells you is that cash levels in stock funds have little relationship to market levels. A range of 4-6% cash in funds accounts for a period in which the market doubled, fell by a huge percentage, etc. Seems like a stretch to link the two so closely.

  32. republican_dreams commented on Aug 16

    Don’t insiders, Wall Street, and the government eventually take the lay person’s money about every 5 years or so?

    – S&L executives made a killing. Debts covered by taxpayers.

    – Dot-com insiders and peddlers sold junk to the public. (It was NOT a bust for the insiders who sold on the way up. This was a wealth transfer.)

    – Marginal homebuyers take on record debt, just as bankruptcy laws made it harder for folks to cancel their debts. (And, as BR points out, new financing regulations will put an even bigger whammy. Dumb money won’t be able to sell to a greater fool. They’ll eventually have to sell to people who still have cash to invest — smart money.)

    – Options backdating…(smaller scale problem).

    We’re just starting to deal with these prior two. But, might another wealth transfer be around the corner?

    Other posters point out competition for “dumb money” becomes a structural imperative for mutual funds to minimize cash holdings (“don’t want to be in the bottom quintile”). And, by far, most mutual funds are long. Meanwhile, hedge funds are less constrained. What might (or will) happen? Well, at *some* point, lay people, with their automatic deductions and 401k’s on autopilot, will likely keep investing in the market long well past a market top. During that time, hedge funds will take their money.

    I’m betting that transfer starts this fall.

  33. CDizzle commented on Aug 16

    Today was potentially a exhaustion rally, as I see it. What has been gettting killed in the last 90 days (semis, homies, etc.) went bonkers today. Recent winners (i.e. ‘defensive plays’ such as WAG and TJX as well as tech standouts such as ORCL) declined.

    With regard to the major indices, we continue to be in a trading range. Until we break out to one side or the other, we’re all just trying to figure out what’s what and little more, IMHO.

    One thing I’ve noted is the negative ratio of 52 wk. highs/lows on the flatter trading days. Looking at charts of indices is one approach, looking at sectors and the components within those sectors gives me the impression that this “trading range” is being propped up a minority of “defensive” plays.

    As always, just one guy’s opinion.

  34. Jim Arnold commented on Aug 16

    the last time you were on Kudlow you said you’re 93% cash, when the Dow was about 700 points lower, you must have been very, very bullish.

  35. S commented on Aug 16

    People suddenly WANT to own tech. CSCO knocking the cover off the ball, DELL moving up yesterday on bad news, the SOX up 8% in two-three days, HPQ announcing an orgasmic quarter, etc. etc. etc. Who knows how long it will last, but for the past couple of days if you ain’t long tech, you’re wrong.

  36. Richard commented on Aug 17

    2006 performance for me has sucked. would’ve been better off being 100% in cash. i’ve been 77% equities, 23% cash with a very well diversified portfolio across stocks, bonds, commodities, etc. as of today on the non-cash portion i’m +2.27%. oh boy. wake me up when the bulls have something real to report.

  37. muckdog commented on Aug 17

    These comment threads are getting quite lively, BR.

    I’ll just think outloud on this one. We had a 2-decade rally in the bond market from the early 80’s through early 00’s. Interest rates trended lower and made money market interest less attractive than other investment options. We saw big growth in Trusts of all sorts, like real estate and oil, that paid large dividends.

    We’ve also seen the demise of the depression era investor, who loathed stocks during the last two decades and who wouldn’t trust anything other than CDs or money market funds. They’re being replaced with folks who are not afraid of debt, leverage or risk.

    Lately, two other “safe’ investments have arrived. That is real estate and gold. Folks see these as sure things due to the Republican Economic Apocolypse that dooms us all.

  38. Anna S commented on Aug 17


    Thanks for pointing out a few things from the other side. Balance is a wonderful thing.

    It does seem there is some sort of shift in momentum. I think this Fed is smarter than skeptics give credit. Listen to Fed Gov Fischer’s 30 minute interview on He lays out a balanced, confident view of this very confusing economy.

  39. larry commented on Aug 17

    i think that shorting any opening gap up today (if happens) can be a reasonably low risk. Qs is a prime candidate. many stocks are technically overbought. Put/call ratio (Aug) in Qs is 1:3.
    to protect the pos one could long SPY

  40. Mr Bernanke commented on Aug 17

    hmm…let me try that.

    One dollar….

  41. Barry Ritholtz commented on Aug 17

    Typepad has a glitch.

    It gets hung up after you complete the Turing test (the letters and numbers you must imitate to post a comment)

    To enter a comment /o multiple posts, open a new explorer or firefox window by clicking “Comments.”

    Write your comment, hit preview, then enter the letter/number combination. MINIMIZE THE WINDOW AND LEAVE IT ALONE. The comments have been entered, and are showing up even if it looks like Typepad is hung up or frozen.

    You can check this in a new window — the comments appear even before typepad finishes processing that page.

  42. larry commented on Aug 17

    …i sold Qs short st 38.83
    my order was limit at 38.82, but firstrade did better by a cent. i hope for the best in short term (no pun) for the bears.

  43. larry commented on Aug 21

    …and finish – i will try to cover today or at least put some tight stop loss. little bit of luck now

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