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Friday, March 10, 2006

Rising Cash Levels Not a Market Call

by: Sean Hanna, Editor in Chief

A number of famed value fund managers appear to be finding it hard to put their cash to work. The rising cash levels in the fund are reported to represent a lack of investment opportunities and not a belief that the stock market is headed for a fall.

The large cash stakes could open the doors to growth products if the market continues to rise and the value investors relative performance weakens.

Reuters reports that the value managers with rising cash levels in their portfolio include Third Avenue Value, First Eagle Funds, FPA Funds and Longleaf Partners Funds.

Fund holding data show that Third Avenue Value now holds more than one quarter -- 27 percent of its $6.89 billion of assets to be exact -- in cash. Meanwhile 20 percent of the 26.7 billion managed by First Eagle's Charles De Vaulx are sitting in cash, including 48 percent of his $357 million U.S. Value fund, Reuters reports. Longleaf Partners' international fund held 11.5 percent of assets in cash at the end of the year.

For Longleaf, rising cash levels are nothing new. During 2004 cash levels in its Partners Fund rose from less than 1 percent to 26 percent at the end of the year. To solve the issue, the fund managers went on a two-day retreat to come with fresh investment ideas, according to Reuters.

The news service also reports that Third Avenue's De Vaulx does not see the portfolio allocation as a market timing call.

"We always believe it's impossible to predict what the market will do. And we know that an overvalued market can remain overvalued for a long period of time," he told Reuters. "So valuation has very little predictive power short-time."  

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