10
First Eagle,
FPA
, and Longleaf Partners all love this
investment. I’m guessing you don’t. Even I don’t, but
I’m willing to take my medicine and hold it.
It’s cash, and it still has uses despite its lack of yield.
The real value is that it can be used to buy up good
deals when they present themselves. The option to
buy something at a lower price is a valuable one.
I don’t know if U.S. equities will be the asset to get
cheaper, but usually something presents itself.
After all, finding bargains isn’t easy in this market.
Consider that Longleaf Partners is encouraging
Long-
leaf Small-Cap
LLSCX
shareholders to redeem:
“With the Fund’s high cash level and slim opportunity
set, our partners should note that if they have current
capital needs, it would seem a good time to take
money out of the Small-Cap Fund to the extent that
doing so does not create a tax liability,” wrote
Staley Cates and Mason Hawkins in their latest
shareholder report.
While many agree U.S. small caps are particularly
unattractive, the rest of the world isn’t awash in
bargains either. Now might be a good time to have
cash on hand, ready for when the next good invest-
ments come along.
I wouldn’t dramatically alter my cash position, but
I might take it to, say,
15%
of my long-term portfolio
from
5%
. (I’m not counting emergency cash in that
number. That should hold steady in the range of six
to
12
months’ spending needs.) With capital gains
being paid out this time of year, you could simply take
that money and put it in a money market fund rather
than reinvest.
If money markets and
CD
s are too depressingly low-
yielding, a short-term bond fund is a reasonable alter-
native. There’s a little more risk, but this would be
money you are planning to put to work in longer-term
assets anyway.
Alternatively, you could buy a fund with a sizable
cash stake and let that manager put it to work when
that seems like a good time.
FPA Crescent
FPACX
has long done a good job of this under Steve Romick,
though I wouldn’t expect him to go to zero cash
even in the best of times.
Artisan Global Value
ARTGX
has
11%
in cash, and I like how managers
David Samra and Dan O’Keefe scooped up bargains
in
2009
. I don’t like the fund’s expense ratio of
1
.
5%
nearly as much, however.
First Eagle Global
SGENX
and
First Eagle Over-
seas
SGOVX
each have
22%
sitting in cash. Managers
Matt McLennan and Abhay Deshpande say they are
content to build cash and wait for the market to offer
up more-attractive names. These funds, as well as
Artisan Global Value, can take advantage of bargains
anywhere in the world.
Yacktman
YACKX
has
22%
in cash, and
Yacktman
Focused
YAFFX
has
21%
in cash. Here, too, you
have skilled value investors just waiting for better
opportunities—and they’ve proved in the past that
they can make something of such opportunities.
Longtime favorite
Sequoia
SEQUX
is another fund
building cash. It’s at
17%
today and has been around
that level for a few years. However, in
2004
and
2005
,
the fund got nearly fully invested.
There aren’t as many growth managers building cash,
but
Akre Focus
AKREX
is sitting on
11%
in cash as
of Sept.
30
,
2013
. Manager Chuck Akre has a growth
orientation, but, like the value managers above, he’s a
patient investor who is willing to let the market
come to him.
œ
Cash Is Your Friend
The Contrarian
|
Russel Kinnel
Our Contrarian Approach
I go against the grain to find
overlooked funds that may be
ready to rally.
