We are living in age of historical lows (and highs).  Every day that goes by you hear about some market or indicator carving out a historical record.  Sometimes these records are worth noting.  On the other hand others are simply misleading.  At present one such measure might be the percentage of cash held by equity mutual funds.  At the very least we should take a skeptical look at what this indicator is telling us about the market.

Two points.  The first is that you cannot look at absolute cash levels without adjusting for the prevailing short-term interest rates (or inflation).  Currently short-term interest rates are essentially zero.  No wonder no fund manager wants to hold cash.  Second there has been a fundamental change in how equity mutual fund managers are measured.  In the age of equity style boxes, adherence to a benchmark is highly valued today.  One should expect to see lower cash holdings than seen historically.  In today’s screencast we discuss how an indicator can lose it value over time.

Posts mentioned in the above screencast:

Mutual funds are “all in.”  (Pragmatic Capitalism)

Mutual fund cash as a % of total assets.  (SentimenTrader – subs only)

3-Month Treasury bill.  (St. Louis Fed)

Mutual fund cash levels adjusted for inflation.  (Trader’s Narrative)

Mutual fund cash surplus/deficit.  (SentimenTrader – subs only)

An enviable track record.  (Marketwatch)

Noise, economic indicators and human action.  (Abnormal Returns)

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Please see disclosures here.

Please see the Terms & Conditions page for a full disclaimer.