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Money managers with lots of cash to invest

- Alan Lavine and Gail Liberman

Investing in stock funds with a lot of cash may be the best way to get back into the stock market.

This way, fund managers will put the money to work when they think the outlook brightens or when stock prices look attractive.

So what are cash investments? Cash investments are investments in U.S. Treasury bills, commercial paper or short-term corporate I.O.U.s, and collateralized overnight loans to banks. Fund managers have daily access to this cash.

Here are some cash-rich funds with good long-term track records, according to Morningstar Inc., Chicago.

  • Longleaf Partners. The fund has 18 percent of assets in cash. The reason: the fund manager still can find good undervalued stocks selling below what the company is worth. Morningstar says this fund has outperformed it peers for a long time.

  • Third Avenue Small-Cap Value Fund. This fund is 17 percent in cash. It invests in undervalued stocks. Companies must have strong balance sheets and be selling far below the per-share value of the company if it were sold.

  • American Funds Growth Fund of America also has about 17 percent in cash. This fund buys growth stocks at reasonable prices. The stocks are cheap in relation to the future earnings growth of companies.

  • Clipper Fund had a whopping 30 percent in cash and bonds for most of this year. But Morningstar says the fund is putting the cash to work. The managers are buying more beaten-down stocks. The fund also invests in undervalued stocks and has a solid long-term track record.

    Before you consider investing in these funds, take a look at your overall holdings. How much do you already have in cash and bonds? You must factor the cash holdings in these funds to be sure you have the right mix of assets.

    One thing is for sure with these funds: they have money to buy stocks that are worth more than current share prices. But don't expect these or any other funds to perform well until the overall stock market goes up.


    Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books).

    To read more columns, please visit the column archive.

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