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Cash Is Your Friend The Contrarian | Russel Kinnel

If money markets and CD s are too depressingly low- yielding, a short-term bond fund is a reasonable alter- native. There’s a little more risk, but this would be money you are planning to put to work in longer-term assets anyway. Alternatively, you could buy a fund with a sizable cash stake and let that manager put it to work when that seems like a good time. FPA Crescent FPACX has long done a good job of this under Steve Romick, though I wouldn’t expect him to go to zero cash even in the best of times. Artisan Global Value ARTGX has 11% in cash, and I like how managers David Samra and Dan O’Keefe scooped up bargains in 2009 . I don’t like the fund’s expense ratio of 1 . 5% nearly as much, however. First Eagle Global SGENX and First Eagle Over- seas SGOVX each have 22% sitting in cash. Managers Matt McLennan and Abhay Deshpande say they are content to build cash and wait for the market to offer up more-attractive names. These funds, as well as Artisan Global Value, can take advantage of bargains anywhere in the world. Yacktman YACKX has 22% in cash, and Yacktman Focused YAFFX has 21% in cash. Here, too, you have skilled value investors just waiting for better opportunities—and they’ve proved in the past that they can make something of such opportunities. Longtime favorite Sequoia SEQUX is another fund building cash. It’s at 17% today and has been around that level for a few years. However, in 2004 and 2005 , the fund got nearly fully invested. There aren’t as many growth managers building cash, but Akre Focus AKREX is sitting on 11% in cash as of Sept. 30 , 2013 . Manager Chuck Akre has a growth orientation, but, like the value managers above, he’s a patient investor who is willing to let the market come to him. œ

First Eagle, FPA , and Longleaf Partners all love this investment. I’m guessing you don’t. Even I don’t, but I’m willing to take my medicine and hold it. It’s cash, and it still has uses despite its lack of yield. The real value is that it can be used to buy up good deals when they present themselves. The option to buy something at a lower price is a valuable one. I don’t know if U.S. equities will be the asset to get cheaper, but usually something presents itself. After all, finding bargains isn’t easy in this market. Consider that Longleaf Partners is encouraging Long- leaf Small-Cap LLSCX shareholders to redeem: “With the Fund’s high cash level and slim opportunity set, our partners should note that if they have current capital needs, it would seem a good time to take money out of the Small-Cap Fund to the extent that doing so does not create a tax liability,” wrote Staley Cates and Mason Hawkins in their latest shareholder report. While many agree U.S. small caps are particularly unattractive, the rest of the world isn’t awash in bargains either. Now might be a good time to have cash on hand, ready for when the next good invest- ments come along. I wouldn’t dramatically alter my cash position, but I might take it to, say, 15% of my long-term portfolio from 5% . (I’m not counting emergency cash in that number. That should hold steady in the range of six to 12 months’ spending needs.) With capital gains being paid out this time of year, you could simply take that money and put it in a money market fund rather than reinvest.

Our Contrarian Approach I go against the grain to find overlooked funds that may be ready to rally.