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Money Managers More Risk-Averse



KAI RYSSDAL: It's not only ordinary investors who don't know what to do with their money anymore. Research out today says professional money managers are more risk averse now than they've been since September 11th. Our New York Bureau Chief Jill Barshay has more.


JILL BARSHAY: Money managers don't like cash. It doesn't earn them much money. They prefer to invest in stocks and bonds. But they've been selling hard over the past two months. Nearly 5 percent of a typical portfolio is now parked in cash. So says a new survey by Merrill Lynch.


Lakshman Achuthan is the managing director of Economic Cycle Research Institute. He says the pros stock up on cash when they think stocks and bonds are too risky.

Lakshman Achuthan: It's like if you were speeding down a highway and you came upon a very dense fog. You would certainly slow down before going further.

Achuthan says the more cash investors have, the safer they'll be if markets tank. But hoarding cash is bad for the economy.

Achuthan: Businesses need access to funding from money managers. Now if the money managers are averse to purchasing stocks or bonds, and they'd rather hold cash, in essence it's putting a lid on the amount that businesses can grow and economic growth.


Some say ordinary investors are forcing the pros to take on more cash.


Russ Kinnel is the director of mutual fund research at Morningstar. He says individual investors are selling out of their funds. So managers need cash on hand to meet withdrawals.


Russ Kinnel: Some U.S. stock funds are getting redeemed because last year was a tough year for them. And money may instead be going into foreign stock, or even emerging market funds, which have been doing better.


If Kinnel is right, that means fund managers might not have much cash to fuel a market rally once the economy improves.


In New York, I'm Jill Barshay for Marketplace.