Finance

Some Value Funds Are Stuffed With Cash as Stocks Surge

Eventually the market will slump, managers say, and they’ll be ready to scoop up the bargains. Meanwhile they’re sweating it out.

Illustration: SAMMY STEIN FOR BLOOMBERG BUSINESSWEEK

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By Charles Stein

November 7, 2017 at 10:00 AM UTC

This article is for subscribers only.

This article is part of the November 13, 2017 issue of businessweek.

Charles de Vaulx knows keeping 40 percent of his fund in cash is hurting results. But as far as he’s concerned, there aren’t many stocks to buy. “Being fully invested has zero appeal right now because stocks are so expensive,” says de Vaulx, whose $8.3 billion IVA Worldwide Fund trails the MSCI All-Country World Index by a big margin this year. “We are willing to underperform while the party goes on.”

He has company. Several prominent value investors—including the managers of the First Eagle Global, AMG Yacktman Focused, FPA Crescent, and Longleaf Partners mutual funds—have been keeping 20 percent to 40 percent of assets in cash for months, in some cases for more than a year. The average equity fund holds 3.2 percent of assets in cash, according to Morningstar Inc. The hoarders are convinced that at some point equities will slump and they’ll have a chance to scoop up bargains. With global markets having returned more than 200 percent since the financial crisis low in 2009, prices seem inflated to them, and not just in the U.S. “Valuations are high across the world,” says Matthew McLennan, head of value investing at First Eagle Investment Management and co-manager of the Global fund.