An estimated 6.5 percent of mutual fund assets were in cash in November, the most recent data available, according to the Investment Company Institute, an industry group. That's the highest cash level since November 1997. Funds are required to keep a certain amount of their assets in cash at all times. And the shrinking stock prices of the last year might exaggerate cash's percentage as a portfolio's overall size diminishes. Still, most analysts agree the percentage is unusual.
Investor behavior is another possible factor.
Ron Santangelo, manager of mutual fund research at Merrill Lynch, says his data shows investors are also hanging onto their cash. He estimates that money market funds currently represent 27 percent of total mutual fund assets for individual investors, compared with 22 percent most of the time. Santangelo speculates that mutual fund managers may have increased their cash reserves to help pay out capital gains. Those portfolio adjustments are the most significant effect of the market's slump on mutual fund managers, Santangelo contends. Right now, it looks like they're going into semiconductors in technology, but they're also dramatically increasing their investment in basic industry.