Why Investors Favor Cash for the First Time in Decades

Photo (cc) by 401(K) 2013

Cash is king again — for the first time in 25 years — at least relative to stocks and bonds.

Investors put so much money into money-market mutual funds last week that the asset class became more popular than stock mutual funds and bond mutual funds for the first time since 1990, CNBC reports.

Money-market mutual funds invest in very short-term, liquid debt like U.S. Treasury bonds. So they are generally more liquid and less volatile than stocks and other bonds, which is why they’re considered cash-equivalent.

Here’s what happened as of Wednesday of last week, according to research released by Bank of America Merrill Lynch and EPFR Global at the end of the week:

  • Some $17 billion was invested in cash-equivalent funds.
  • $3.3 billion was pulled out of stocks through stock mutual funds and exchange-traded funds (ETFs).
  • Only $400 million was invested in bonds.

Within the bond market, relatively safe U.S. Treasury bond funds were more popular than corporate bonds. Money was pulled out of corporate bonds for the 12th consecutive week, and Treasury bond funds gained some of that loss.

The global chief investment officer at UBS Wealth Management, Mark Haefele, tells CNBC that his company has downgraded its position on U.S. high-yield corporate bonds from “overweight” to “neutral” for the first time since 2011:

“Markets are likely to remain fragile in anticipation of economic growth data that are still a few weeks away. …

“This [downgraded] position, which has performed well since initiation in 2011, no longer offers an attractive risk-adjusted rate of return. An increase to our equity overweight position is under consideration, but we need to see a reduction in market volatility and evidence that developed market economies are stable before taking action.”

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