Mutual Fund Cash Composition

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niners9088
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Joined: Mon Jul 07, 2014 9:50 am

Mutual Fund Cash Composition

Post by niners9088 »

I was looking at the composition of several of my funds and noticed that each carry about 2-5% in cash. I understand why they do this, for liquidity reasons, but my question is does anyone take this into account when doing their allocations? For instance in my 401k portfolio, just looking at fund description I'm 93% Stocks, 7% Bonds however if I use the cash in the funds my overall position would be 90% Stocks, 10% bonds. Given my low bond allocation that is a change of ~40%!
sport
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Re: Mutual Fund Cash Composition

Post by sport »

Since one cannot take that cash and buy anything else with it, I just ignore it. It is not available to me as cash.
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Earl Lemongrab
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Re: Mutual Fund Cash Composition

Post by Earl Lemongrab »

As I recall, frequently what shows up as cash isn't really cash at all. Ignore it.
Geologist
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Re: Mutual Fund Cash Composition

Post by Geologist »

Mutual Funds may have some cash for liquidity, but they can then buy options/futures to simulate full investment despite that cash. Therefore, their cash holding may not be as high as you think. The exact overlap of the options/futures and the cash may vary over time too.

This is probably what Earl Lemongrab had in mind when he wrote that the "cash isn't really cash at all."

Consequently, I would agree with other posters that you should ignore it in your asset allocation.
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Doc
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Re: Mutual Fund Cash Composition

Post by Doc »

Geologist wrote: Consequently, I would agree with other posters that you should ignore it in your asset allocation.
The problem only becomes significant if the fund is using a very large amount of derivatives like some of the Pimco managed bond funds.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
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