My friend George Scombulis at Kairos Opportunities used this for the title of one of his recent updates, and it seems to be the general consensus: There isn’t a lot to like out there. Stocks are expensive, and bonds are, too.
Standard and Poor’s chief market strategist, Sam Stovall, paints a fairly gloomy picture in his second-half outlook: “Economic growth is expected to be slower this year than last, S&P 500 EPS growth will have difficulty keeping its head above water, forward 12-month valuations are nearly 33% higher than a year ago, and the value of the U.S. dollar is 20% above where it was last year.”
What’s an investor to do? One solution is to hold more cash until the market seems more appealing to you. This means, of course, that you’ll be able to time the market, which is a wonderful thing on the few times it works.
Another solution is to invest in a fund that has allowed cash to build up because it, too, can’t find anything worth buying. Normally, these are value investors who won’t put money to work if they can’t find bargains. And this seems like a reasonable approach to holding cash. So let’s start by looking for diversified stock funds with 10% or more of their assets in cash.
The key, however, is that the fund must have a decent strategy for investing. Of those cash-laden funds, 25 have five-year records that put them in the top 10% of their category. In short, these funds all have excellent records and at least a 10% buying reserve.
A few glosses: Eventide Gilead is a social and religious fund that tends to favor health-care stocks, which have been hot this year. Hennessy Focus, as its name implies, is a best-ideas fund that typically keeps 20 to 30 stocks and expects to hold them at least five years. Upright Growth is a small fund — $10.5 million in assets — that apparently has no web site.
The Metro West fund invests the bulk of its money in bonds and cash, using stock futures to give it its equity kicker, so the 64% cash weighting is actually less defensive than it looks. The Undiscovered Managers Behavioral Value listed below is institutional — meaning you need a ton of money to buy it. Or you could buy the investor shares, which carry a maximum 5.25% sales charge but have a more reasonable minimum.
The two Artisan funds are closed to most new investors, but do tend to re-open when management thinks opportunities are ripe. It’s worth keeping an eye out for a re-opening.
|Fund||Ticker||Category||Total return 2015||Total return (annualized) 5 years||Cash %|
|Eventide Gilead N||ETGLX||Mid-Cap Growth||13.8%||23.7%||18.2%|
|Hennessy Focus Investor||HFCSX||Mid-Cap Growth||6.9%||19.0%||12.5%|
|Upright Growth||UPUPX||Large Blend||14.9%||18.4%||10.6%|
|Metropolitan West AlphaTrak 500||MWATX||Large Blend||3.1%||18.1%||64.0%|
|Undiscovered Mgrs Behavioral Value Inst||UBVLX||Small Value||8.3%||17.7%||10.1%|
|Monteagle Select Value||MVEIX||Large Value||3.9%||17.5%||10.7%|
|Johnson Enhanced Return||JENHX||Large Blend||3.5%||16.9%||30.5%|
|Artisan Global Value Investor||ARTGX||World Stock||3.4%||14.6%||12.5%|
|Artisan International Value Investor||ARTKX||Foreign Large Blend||6.3%||13.7%||15.0%|
|Tweedy, Browne Global Value||TBGVX||Foreign Large Value||2.8%||9.8%||23.4%|