Cash: Plenty of Dry Powder
Written by: Global Thought Leadership
17 July, 2020
Chart courtesy of ClearBridge Investments. * Institutional & Retail Money Funds – ICI. ** MSCI U.S. IMI Index. Data as of July 3, 2020. Source: FactSet. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment
The chart shows, as of July 3, 2020, the amount of money in institutional and retail money funds (reported by the Investment Company Institute) as a percentage of the equity market capitalization of the MSCI U.S. Investable Market Index (IMI).
The Bottom Line
- Cash holdings represented 18.8% of total equity market capitalization in early July—the highest level since 2012, according to ClearBridge Investments.
- That’s a lot of dry powder that investors could deploy back into the market to help keep the strong rebound off the March lows moving forward.
- While markets have historically retested lows coming out of recessions—something that could still happen—ClearBridge Investment Strategist Jeff Schulze notes that decisive policy actions appear to have put a floor under markets much sooner than in the past.
- The degree to which investors may fear “missing out” on the potential for more upside could be a key factor in how much cash moves off the sidelines into equities.
- Of course, economic uncertainty remains rife as the coronavirus crisis hurtles forward, so even if recent lows are not retested, there could be considerable volatility ahead. If so, the current cash mountain would likely shrink more slowly.
Dry powder refers to cash on hand that is available for investing.
The Investment Company Institute (ICI) is the trade association for regulated fund companies.
Market capitalization (market cap) is the total dollar market value of all of a company's outstanding shares; it is calculated by multiplying a company's shares outstanding by the current market price of one share.
The MSCI USA Investable Market Index (IMI) is designed to measure the performance of the large, mid and small cap segments of the US market. With 2,344 constituents, the index covers approximately 99% of the free float-adjusted market capitalization in the US.
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