Index's Holding Cash? Why?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
WentzWagon
Posts: 177
Joined: Thu Jan 08, 2015 10:25 am

Index's Holding Cash? Why?

Post by WentzWagon » Thu May 25, 2017 7:37 pm

When I look at my investments in Index funds, I see that they all hold cash. Can anyone explain why?

Two that stand out are the following whe using "personal capitol"

1. Fidelity Total Intl Index - Purchased $20K this week ($3,591 showing held in cash)

2. PTTRX - Own $31K (Negative $11,924 held in cash)

alex_686
Posts: 3323
Joined: Mon Feb 09, 2015 2:39 pm

Re: Index's Holding Cash? Why?

Post by alex_686 » Thu May 25, 2017 7:42 pm

Redemption / Purchases - these can happen late in the day and the fund may not be able to quickly or completely reconstitute the index.

Dividends that have gone ex date but have not paid. Funds operate on accrual accounting, not cash.

Futures. A quick and fast way to do index investing is to buy the future. This requires you to hold collateral - which is normally classified as cash.

WentzWagon
Posts: 177
Joined: Thu Jan 08, 2015 10:25 am

Re: Index's Holding Cash? Why?

Post by WentzWagon » Thu May 25, 2017 7:44 pm

Interesting. I feel like the PTTRX one has been showing for a few days.

GLState
Posts: 126
Joined: Wed Feb 15, 2017 10:38 am

Re: Index's Holding Cash? Why?

Post by GLState » Thu May 25, 2017 7:49 pm

It looks like PTTRX is shorting cash and bonds they don't like to buy more bonds that they do like. Personal capital must just be showing net...Morningstar shows short and long positions. edit: PTTRX is short 38.42% Cash and Net 138.17% Bonds (210.64% long, 72.47 short).
http://beta.morningstar.com/funds/xnas/pttrx/quote.html
Last edited by GLState on Thu May 25, 2017 7:56 pm, edited 3 times in total.

WentzWagon
Posts: 177
Joined: Thu Jan 08, 2015 10:25 am

Re: Index's Holding Cash? Why?

Post by WentzWagon » Thu May 25, 2017 7:50 pm

GLState wrote:It looks like PTTRX is shorting cash and bonds they don't like to buy more bonds that they do like. Personal capital must just be showing net...Morningstar shows short and long positions.
http://beta.morningstar.com/funds/xnas/pttrx/quote.html
Awesome. Thanks!

WentzWagon
Posts: 177
Joined: Thu Jan 08, 2015 10:25 am

Re: Index's Holding Cash? Why?

Post by WentzWagon » Thu May 25, 2017 9:42 pm

Someone in another thread mentioned the following.

1. They are holding cash in case the market crashes. In that case they will use the cash to buy in cheap at the bottom and make up for losses/ come out on top in the end.
2. Negative cash means they are using margin. Means they are borrowing money to increase buying power, thereby increasing returns. Sounds great, but if there is a crash you can lose everything. I'd lose the Pimco if I were you

User avatar
grabiner
Advisory Board
Posts: 21919
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Index's Holding Cash? Why?

Post by grabiner » Fri May 26, 2017 8:13 pm

flyersrule wrote:Someone in another thread mentioned the following.

1. They are holding cash in case the market crashes. In that case they will use the cash to buy in cheap at the bottom and make up for losses/ come out on top in the end.
This is not the case for index funds. Index funds attempt to track the index; they use cash for liquidity, and offset it by getting leverage elsewhere. For example, if the S&P 500 index is at 2000, a fund can hold $1000 in cash, and an index option to buy at $1000; the $1000 in cash is available to meet redemptions but the option gives the fund the same market exposure as the index.

Even most active funds don't hold cash for market-timing purposes; they hold cash for liquidity, and for funds awaiting investment opportunities. A fund which holds 5% cash usually holds about that 5% in all markets.
Wiki David Grabiner

lack_ey
Posts: 6446
Joined: Wed Nov 19, 2014 11:55 pm

Re: Index's Holding Cash? Why?

Post by lack_ey » Fri May 26, 2017 8:51 pm

I don't really trust Morningstar to get all the positions right for a more complicated fund. There have been numerous errors in the past. It's hard to automatically code all the information correctly. For PIMCO Total Return, if you want to know the exposures, check their website. The fund manager has a better idea of what their swaps and other derivative positions are, for example.

Post Reply