Mutual Funds Are Low In Cash Reserves

A single number from the world of mutual funds has a great deal to say right now about the temper of the times on Wall Street.

The datum in question is the monthly tally, reported by the Investment Company Institute, of cash reserves at stock mutual funds - that is, the percentage of total assets that stock fund managers have set aside in short-term money market securities such as Treasury bills.

Lately it has been hovering around its lowest level in two decades. But after worrying about this trend for a while a year or two ago, most analysts seem to have decided that it is no great cause for concern.

At last word from the ICI, the stock fund “liquid assets” ratio stood at 6.1 percent, up just a shade from readings of between 5.5 percent and 6 percent through the winter and early spring.

The last time it got that low was in 1976 and 1977, when stock funds as a group were about one-sixtieth their present size. In late 1989 and 1990, by contrast, the ratio was up in the 11 percent to 13 percent range.

Stock market analysts used to watch the ups and downs of this number closely for clues to the possible future direction of stock prices. In theory at least, a high total represents a large pool of potential future demand for stocks, while a small percentage suggests that fund managers can’t get much more bullish than they already are.

The double-digit figures at the start of the ‘90s could have encouraged you to buy stocks or stock mutual funds at what turned out to be a very opportune time. But if the shrinking totals in the mid-1990s prompted you to sell out, say about a year and a half ago, you left just when the party was getting good.

Indeed, in the eyes of many optimists on the market outlook, the cash-reserve data is less significant now than it used to be because the approach many fund managers take has changed. Where once they raised and lowered cash reserves as a way to try to take some of the sting out of market fluctuations, most stock managers today don’t even attempt this sort of “market timing,” but follow a policy of staying as fully invested in stocks as they can be at all times.