Almost $6 trillion cash pile in money markets may need to start being redeployed soon, Janus Henderson says

By Vivien Lou Chen

There's almost $6 trillion of cash sitting on the sidelines in money-market funds, with the potential for some portion of it to be reallocated into "carefully selected risk assets."

This is according to Ali Dibadj, chief executive of London-based Janus Henderson Investors, which had $308.3 billion in assets under management as of September. About $187.9 billion, or 61%, of that was in equity strategies.

The stockpile of cash in money-market funds has almost doubled since 2018 to about $5.92 trillion, according to the most recent figures from the Federal Reserve - driven by investors seeking to take advantage of some of the highest U.S. interest rates in decades.

With borrowing costs now likely close to their peaks and set to possibly fall, "this will reduce the attractiveness of holding cash and likely see reallocations to the return-generating potential of carefully selected risk assets," Dibadj wrote in a blog on Wednesday.

See also: Favoring 5% savings accounts and CDs over stocks now? Think again.

Top Wall Street investment banks, brokers and research firms generally expect U.S. stocks to keep rising, but largely expect returns to remain far below average for the S&P 500 SPX next year, according to forecasts viewed by MarketWatch.

Money-market industry experts argue that "cash on the sidelines" hasn't historically been redeployed into stocks, since institutional players like corporations mostly use money-market funds to deal with their cash balances.

Yet Dibadj at Janus thinks the potential for reallocations to risk assets is one factor that "suggests we have entered an era suited to actively managed investment strategies," the chief executive wrote. "For much of the last decade returns have been fueled by cheap money and broad equity markets have generally risen, which suited passive, index-led strategies and undiscerning private equity ... This is an environment requiring investment in the right asset class and in the right securities, operating against the right backdrop."He foresees a scenario developing that will likely favor "stock pickers, differentiated research, and a selective approach to allocating assets."

On Thursday, U.S. stocks DJIA SPX COMP finished mostly higher, with the Dow Jones Industrial Average jumping more than 500 points and being helped by strong earnings results from Salesforce Inc. CRM.

-Vivien Lou Chen

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11-30-23 1606ET

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