Observing Your Cash - Part 2


A year ago I published a newsletter titled, ‘Observing your cash’ that highlighted the higher levels of cash on hand within the various mutual funds I follow closely. At the time I was advocating that a market drop would be healthy, and your managers were ready should this occur. I also reiterated the strict process the managers of these funds use, that explained how the cash had gotten so high in these portfolios. I wanted to update everyone on what has changed over the past year, and what has happened to bring us to this point. For one thing, the market downturn I was predicting a year ago has not happened, however, there have still been several events over the past year that have brought volatility back into the markets. In Sept. 2014, Putin invaded the Ukraine and markets sold off briefly. In Dec. 2014 oil started its sell off, which also resulted in a market decline. For the first half of 2015, questions about Greece, coupled with speculation about U.S. interest rate policies have brought significant day to day movements, both up and down, in the markets around the world. Every one of these events caused a very short lived sell off in the market, however, these brief sell offs never stuck, and markets continued to bounce back quite nicely each time. What has been interesting for me is watching the changes within the funds, and specifically their cash holdings, over this past year. The cash positions today are not very different from where they were at this time last year (see chart below).


As you can see, the cash levels remain high in these funds, and in some cases they are a little higher. What this chart does not show is the active management we have had month by month. After each of the negative market events listed earlier, the funds cash positions would shrink a little. Also, as the markets made their rebound the cash positions would creep back up again. The managers were following their process of buying on the down days, and selling during the up days. “Buy Low/Sell High.” My hope with this month’s Martens Report is to address two key points:

  • Firstly, I am not any better at making a market prediction than anyone else out there (i.e. I do not know when it will go up or down). I do not think anyone can accurately predict the direction of the markets, no matter how informed one is.

  • Secondly, since market predictions are impossible, sleep well knowing the managers of your funds are taking advantage of opportunities when they present themselves. An example of this is when they start buying high quality companies in the Euro zone when Greece needs yet another bailout or finding Oil Companies that are still profitable, even with Oil at $60/barrel.

If you would like to meet with us and review any of your investments we can assess the cash weighting in your own portfolio and discuss how the managers are feeling about the markets, valuations, and where they are finding their opportunities today. We’d love to take the time to go over this with you.


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