Roller coaster? What roller coaster? After an anguished fall, the worst December market since the Great Depression, the Christmas Eve Massacre and a million howling headlines, we are pretty much back where we were in September with index values (and stock valuations) near historic highs.
As of the end of February, 2019, the Vanguard Total Stock Market Index Fund (VTSMX) was sitting just 3.66% below its September, 2019 level … and it was still rallying, picking up 0.69% on March 1, 2019.
In a singularly prescient moment, we reminded folks a year ago that “holding 15% cash is good. The stock market is teetering. Its valuations are at or near all-time highs by a variety of measures. Washington is somewhat unhinged. People, and machines, are primed for a panic. And the best way to survive a panic is to have a clear plan and cash on hand to move in when others are giving away their shares.”
Most of those same conditions exist today, though the Federal Reserve may well choose not to stir the pot nearly so much as many expected.
The 15/15 formula
We searched, a year ago, for equity funds that had two characteristics: in 2017, they held at least 15% cash and had a positive return of 15% or more.
It was ridiculously easy to make 15% total returns in 2017. 3406 funds managed the feat.
And it was not particularly hard to hold 15% cash in 2017, though it was certainly unpopular with investors. 970 funds held that level of cash, either as collateral on derivative purchases, as a defensive move or from the inability to find suitable investors.
Making 15% is good. It’s about 50% above the stock market’s historic rate of return and is a bit better than most balanced funds.
Holding 15% cash and still finding a way to make 15% in 2017 – that is, having both dry powder to profit in a crash while not sitting out the market’s rise – was rare, difficult and desirable. We celebrated the 15 funds that held cash in reserve, posted really solid absolute returns and were available to retail investors.
How did the 15/15 funds do subsequently? Relatively well, really. 75% of them outperformed their peer group during 2018’s turbulent market. Many enter 2019 with considerable dry powder still available for when the next shoe drops.
Here’s the two-year snapshot.
| 15/15 fund | 2017 return | 2017 Cash | 2018 return | 2018 cash | |
| AMG Yacktman Focused | Large Core | 20.0% | 23% | 2.9% | 20% |
| Port Street Quality Growth | Large Blend | 15.0 | 44 | (0.7) | 42 |
| Hillman | Large Value | 16.4 | 15 | (2.8) | 5 |
| Meeder Muirfield | Tactical Allocation | 20.3 | 30 | (3.7) | 72 |
| Leuthold Core Investment | Tactical Allocation | 15.8 | 18 | (6.2) | 42 |
| Tweedy, Browne Value | Global Large Cap | 16.5 | 33 | (6.4) | 40 |
| Longleaf Partners International | Int’l Large Core | 24.2 | 22 | (7.8) | 5 |
| Monongahela All Cap Value | Mid-Cap Value | 20.8 | 20 | (8.1) | 4 |
| Meeder Dynamic Allocation | Aggressive Allocation | 21.2 | 20 | (8.7) | 24 |
| Seven Canyons World Innovators (formerly Wasatch World Innovators) | Global Small/Mid Cap | 33.0 | 24 | (10.4) | 8 |
| T. Rowe Price Intl Concentrated Equity | Int’l Large Core | 21.1 | 21 | (10.7) | 11 |
| FPA International Value | Int’l Small/Mid Blend | 27.1 | 29 | (10.8) | 22 |
| The Cook & Bynum | Large Core | 15.1 | 39 | (13.4) | 22 |
| Quantified Market Leaders | Mid-Cap Growth | 16.9 | 20 | (13.5) | 17 |
| US Global Investors Emerging Europe | Emerging Europe | 22.7 | 21 | (17.0) | 4 |
| Segall Bryant & Hamill Fundamental Int’l Small Cap (formerly Westcore International Small-Cap) | Int’l Small/Mid Growth | 33.6 | 31 | (23.0) | 2 |
Green cells indicate performance in the top half of their respective peer groups.
We re-ran our screen in February 2019, looking for funds which came out of 2018 with both strong performance and a considerable commitment to cash. Only seven retail funds posted winning records last year (green cells under 2018 return), but we’re also including 16 other funds with exceptionally strong relative performances in 2018 paired, in almost all cases, with exceptional three-year records as well.
| Cash | 2018 return | 2018 %ile | 3 year return | 3 year %ile | Risk | ||
| Artisan Thematic Investor | Lg Gr | 30 | 11.23 | 1 | — | — | — |
| Biondo Focus | Lg Gr | 23 | 6.34 | 4 | 23.35 | 4 | High |
| Federated Kaufmann | Mid Gr | 20 | 3.63 | 5 | 23.14 | 5 | Average |
| AMG Yacktman Focused | Lg core | 24 | 2.88 | 1 | 14.72 | 35 | Below Average |
| Marshfield Concentrated Opportunity | Lg Gr | 15 | 1.92 | 15 | 20.77 | 9 | Low |
| Rational Dynamic Brands | Lg Gr | 30 | 0.63 | 22 | 12.65 | — | Above Average |
| Kinetics Small Cap Opportunity | Small Core | 31 | 0.29 | 1 | 25.49 | 1 | Average |
| Frontier MFG Global Plus | Lg Gr | 23 | -0.12 | 28 | 13.04 | 88 | Low |
| Meridian Enhanced Equity | Large Gr | 25 | -0.64 | 34 | 21.98 | 5 | High |
| Port Street Quality Growth | Lg Core | 42 | -0.68 | 5 | 8.69 | 96 | Low |
| Provident Trust Strategy | Lg Gr | 17 | -1.22 | 39 | 14.71 | 73 | Low |
| Sims Total Return | Lg Value | 21 | -1.31 | 3 | 6.65 | 98 | Low |
| Chesapeake Growth | Lg Gr | 15 | -1.74 | 47 | 15.77 | 60 | Above Average |
| Convergence Core Plus | Lg Core | 26 | -1.92 | 9 | 13.35 | 62 | Average |
| Yorktown Capital Income | Global | 24 | -2.74 | 6 | 9.95 | 77 | Below Average |
| Aspiriant Risk-Managed Equity | Global | 16 | -3.52 | 10 | 10.98 | 62 | Low |
| JHancock Technical Opportunities | Lg Gr | 22 | -4.65 | 75 | 12.69 | 89 | Above Average |
| Nuance Concentrated Value | Lg Value | 22 | -4.72 | 14 | 12.15 | 54 | Below Average |
| Catalyst/Lyons Tactical Allocation | Lg Core | 15 | -4.96 | 39 | 7.89 | 97 | Average |
| Kopernik International | Intl Lg Val | 35 | -6.25 | 1 | 8.89 | 41 | Above average |
| Tweedy Browne Global Value | Intl Lg Val | 42 | -6.67 | 1 | 8.76 | 43 | Low |
| FMI International | Intl Lg Core | 59 | -9.46 | 8 | 8.05 | 67 | Low |
| FPA International Value | Intl SMID | 22 | -10.81 | 5 | 11.99 | 13 | Low |
The green cells represent particularly noteworthy values:
- 2018 returns greater than zero
- 2018 returns in the top half of their peer group
- 3-year returns of 10% or more
- 3-year returns in the top half of their peer group
- Morningstar risk scores that were below average or low
Bottom line: Cash works. Portfolio hedges can be complex, expensive and iffy. Or they can be simple, cheap and reliable. Of all of the ways to guard your wealth, investing with professionals who are willing to hold cash in frothy markets and invest it in bloody ones has worked for a long while. Investors looking for a portfolio hedge, but who aren’t immediately drawn to complicated and costly hedging strategies, might want to start here.
