Skip to Content
Investing Specialists

How American's Putting Cash to Work

How cash stakes of some American funds have declined, and what the managers of those funds are buying.

Mentioned: , , , , , , , , ,

American's equity funds often have held healthy cash positions. Of course, because of the multiple portfolio counselor system, the aggregate cash position of a fund is the result of many disparate decisions of the underlying counselors. Those cash stakes, however, can also help avoid problems that fund flow issues could cause--having to sell stocks to meet redemptions, for example--while also allowing the counselors to pounce on opportunities when they arise. Holding cash both as ballast and as an option on future bargains is a strategy many value investors employ.

Based on our analysis of recent regulatory filings, some American Funds now have decidedly lower cash stakes than they have had in the past. In other words, the counselors running the funds may be "exercising their options" and buying stocks at what they think are cheap prices. This is understandable, given that 2008 was a horrendous year for the markets and that stocks were arguably very cheap in early 2009, despite problems in the financial system and the economy at large.

One might have expected the market's fierce bounce back since March 2009 to deter some of American's counselors from continuing to buy stocks, it doesn't appear to have discouraged all of them. Like many American Funds' counselors, Warren Buffett recently bagged the "elephant" he'd been looking for by purchasing  Burlington Northern (BNI) for  Berkshire (BRK.B). (Capital Group, parent of the American Funds, happens to be the largest institutional owner of Burlington Northern.)

To view this article, become a Morningstar Basic member.

Register for Free

John Coumarianos has a position in the following securities mentioned above: MSFT, BRK.B. Find out about Morningstar’s editorial policies.