Has Holding Cash Helped Equity Fund Managers?

Holding more cash can be a tactical decision as managers wait for deals.In a volatile year for stocks, equity fund managers are increasingly sticking with cash.  Of the 415 U.S. equity funds covered by Morningstar, 63% have increased their cash allocation since the end of last year. In July 2022, equity funds reported their highest average cash level since March 2020, and before that, since February 2016.

Managers may be responding to a volatile market that has sent major stock indexes down 10% or more this year.  One of the largest mutual funds has increased its cash stake the quickest. The $220 billion American Funds Growth Fund of America (AGTHX) increased its cash allocation from 3.3% of the portfolio at the end of 2021 to 9.5% as of June 30.

Its current level is its highest since June 2010. Morningstar analyst Stephen Welch writes that the “fund’s cash stake has typically been less than 7% of assets the past five years but has risen to roughly 15% during periods of market stress.” Market uncertainty may be causing managers to keep cash on the side more than before, he says.

The average U.S. equity fund held 2.84% of its portfolio in cash as of July 31, according to Morningstar data, up from 1.29% at the end of 2021. This figure hovered around 1.87% the past five years, most dramatically spiking in March 2020, to 3.08%.

Holding cash can be a benefit when markets are going down, but keeping cash on the sidelines can be a burden on performance when markets are rising unless managers are effective at putting it to work, says Tony Thomas, associate director of equity strategies for Morningstar.

Holding more cash can be a tactical decision as some managers like to wait for good deals, though both redemptions and inflows also can affect a fund’s cash level, Thomas adds. Among funds that held the largest cash stakes at the beginning of the year, year-to-date performance is mixed.

Royce Small-Cap Special Equity (RYSEX) held 15.4% of its portfolio in cash at the start of the year. Its large cash stake seems to have had a positive effect on the fund this year, along with the industrials and communication-services sectors, according to Morningstar Direct. The fund was down only 5.71% year to date through July compared with the average small-value fund’s 7.74% drop.

However, as stocks have rallied the past four weeks, it has lagged and now ranks in the 64th percentile year to date. Managers have continued to put more cash on the sidelines, allocating another 4% of the fund to cash as of June 30. Thomas writes that the “managers will allow cash to build when they can’t find enough ideas that meet their stringent quality and valuation standards.”

For AMG Yacktman (YACKX), it wasn’t the first time the managers turned to cash, but its sizable cash stake of 15.3% hasn’t prevented the fund from dropping 8.5% this year, putting it in the 75th percentile of the large-value Morningstar Category.

In 2020, managers Stephen Yacktman and Jason Subotky executed their “defense to offense” playbook in a steep selloff. “Entering that period with a 25% cash stake helped the fund lose 8 percentage points less than the Russell 1000 Value benchmark through the market’s March 23 trough,” writes Morningstar senior analyst Adam Sabban.

A table showing the 10 funds with largest cash allocations as of Dec. 31, 2021.

Multiple managers have quickly moved into cash this year. Federated Hermes Kaufmann (KAUFX) increased its cash stake by 7.7 percentage points from the start of the year to 10.8% of the fund. In his analysis of the fund, Thomas writes that “lead managers Hans Utsch and John Ettinger sometimes raise cash in times of uncertainty, but the sector managers might also hold cash if they can’t find the right opportunities.”

The portfolio’s cash stake can fluctuate. “It was as high as 23% in June 2019 but was just 1% in June 2021,” Thomas says. A pair of Fidelity funds went from holding less than 1% in cash to now dedicating more than 5% to cash. Fidelity Mid-Cap Stock (FMCSX) now holds a 6.76% cash allocation, and Fidelity Equity-Income (FEQIX) holds a 5.56% stake.

Amana Growth (AMAGX) upped exposure to cash by 5 percentage points in the first six months of 2022 to put its total stake at 10.52%, one of the largest allocations to cash in the large-growth category. Cash was one of the few sectors to contribute positively to the fund’s year-to-date decline of 16.5%, which still put the fund in the 22nd percentile in the category.

The fund’s cash allocation is still relatively light compared with previous periods. Morningstar senior analyst David Kathman writes, “The portfolio’s cash stake peaked at more than 30% in late 2008 and was one of the reasons it held up so well in that brutal bear market.”

A table showing the 10 funds with the largest cash allocations as of June 30, 2022.

Source: Has Holding Cash Helped Equity Fund Managers? | Morningstar

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Cash as an Inflation Hedge: Revisited

The Cons (And Pros) Of Vanguard’s Decision To Offer Private Equity

Cash As An Inflation Hedge

3 Equity Funds To Watch: The Latest Additions To Morningstar’s Pros…

China unveils cash management rules to facilitate overseas investment in bond market as financial opening continues Global Times

Thursday
14:47 Thu, 17 Nov
18:10 Tue, 15 Nov
15:44 Mon, 07 Nov
18:59 Thu, 03 Nov
11:02 Thu, 03 Nov
20:02 Mon, 31 Oct

What Are Fund Flows And Why Do They Matter?

Stock Funds With The Best And Worst Down Capture During The Sell-Off

Fidelity® Mid-Cap Stock (FMCSX) , Fidelity® Equity-Income (FEQIX) , American Funds Growth Fund of Amer A (AGTHX) ,

CIELO Fund, IE Black Equity Fund taking grant applications from Inland Empire groups The Press-Enterprise, California

15:00 Fri, 18 Nov
14:50 Thu, 17 Nov
22:51 Wed, 16 Nov
17:13 Wed, 16 Nov
07:19 Wed, 16 Nov
00:46 Wed, 16 Nov
22:20 Tue, 15 Nov
19:31 Tue, 15 Nov

Federated Hermes Kaufmann R (KAUFX) , Amana Growth Investor (AMAGX) , AMG Yacktman I (YACKX) , Royce Small-Cap Special Equity Invmt (RYSEX)

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The Thriving Business of ‘Ikea Hacking’

Last August, Alex Hernandez found herself in the market for a new piece of furniture. Holed up in her Miami studio apartment, the 31-year-old executive assistant had grown weary of her “cheap and basic-looking” Ikea couch. She shopped around online and found a new one she liked — but it was a designer brand that was out of her price range.

So she opted for a makeover instead. She spiced things up with a set of mid-century modern legs ($70) and a new cover ($120) from an Ikea customization website. The project cost Hernandez about one-tenth of the designer version she’d had her eye on and it saved an old piece of furniture from the landfill.

This type of upcycling, called Ikea hacking, has been on the rise during the pandemic. And for companies that sell custom Ikea-friendly fixtures — legs, couch covers, knobs, and cabinet doors — business is booming.

What the heck is Ikea hacking?

Ikea has achieved the kind of scale and brand recognition that most companies can only dream of. With ~$44B in annual revenue, 445 retail stores, and 217k employees, the Sweden-based company is the world’s largest home furnishings retailer, enjoying a stranglehold on the ready-to-assemble furniture market.

In many countries, 50%+ of the population owns at least one Ikea product. In a way, Ikea is kind of like the Bitcoin of furniture: the company uses universal designs, meaning its hardware and measurements are uniform across most of the developed world.

And folks who want to add some pizzazz to their mass-produced Billy bookcases and Kallax shelf units have no shortage of customization options to choose from online. Broadly, Ikea hacking is any form of upgrading, customizing, repurposing, or personalizing a piece of stock Ikea furniture.

The movement gained steam in the mid-2000s, when popular DIY blogs like Ikea Hackers and Instructables began offering up easy, affordable tweaks to popular items like Billy bookcases and Kallax shelf units. At first, Ikea wasn’t a fan of people customizing its furniture and even sent Ikea Hackers a cease and desist. But since then, the company has embraced its hackers.

And over the past decade, this once small and wacky community has burgeoned into a full-fledged industry. Nearly every social media platform abounds with Ikea hacking content:

  • TikTok: 64m views on #ikeahacks videos
  • Instagram: 500k posts tagged with #Ikeahack
  • Facebook: hundreds of Ikea hacking groups with more than 1m collective members
  • YouTube: thousands of Ikea hack videos with 100m+ views
  • Pinterest: an endless scroll of DIY Ikea projects
  • Reddit: r/Ikeahacks boasts 76k subscribers and has grown 400% in the past 5 years

Within this broader ecosystem, certain Ikea products have earned a cult following in niche communities. Plant enthusiasts use Fabrikör cabinets to make their own indoor greenhouses. Photographers convert Schottis shades into DIY lightboxes. Parents transform Flisat tables into sensory stations for toddlers. Some have even crafted sex toys out of Ikea shoe trees and milk frothers.

In a survey of 1,206 readers of The Hustle, half of all respondents said they had heard of the concept of Ikea hacking — and 43% said they’d engaged in the practice at some point. In our survey, readers had no shortage of their own creative new uses for old Ikea furniture:

  • Jordan Elgie (musician, Ontario) turned an Ikea shelf into an electric guitar pedalboard.
  • Peter Sanderson (sales director, Rhode Island) converted an Ikea headboard into a dog gate for his Rottweiler puppy.
  • Randy Hees (museum director, Colorado) built a floor-to-ceiling library using 26 Ikea bookcases.
  • Rick Moore (film technician, Vancouver) transformed an Ikea butcher block cart into a wine rack.
  • Laurel Choate (literary agent, New York) made a kitchen island out of Ikea shelves, legs, and a countertop.

During the pandemic, an increase in remote work and time spent at home has led to a DIY remodel boom — and a surge in Ikea hacks. Among our respondents, 69% said they had bought new furniture during the pandemic, and 38% said they had updated an existing piece of furniture.

“We disassembled a cheap Ikea table, painted it a new color, and bought new legs to make it more mid-century modern,” says Zoë Kronovet, a digital marketing manager in North Carolina. “We also bought a $300 velvet midnight-blue cover for a basic Ikea couch to give it a new life.”

Like Kronovet, the majority of Ikea hackers stick to simple aesthetic changes: new knobs on a dresser, a new set of legs on a table, or new cabinet doors — little touches to shake things up. And they have no shortage of options to choose from.

The Ikea hacking industry

When on the hunt to revamp old Ikea wares, prospective customers often turn to a cottage industry of e-commerce startups — mostly female-owned — that specialize in Ikea customization:

  • Semihandmade, Reform: customization options for Ikea kitchens
  • Superfront, Norse Interiors: legs, hardware, and cabinet doors for an array of best-selling Ikea products
  • Prettypegs: legs for Ikea sofas, tables, and consoles
  • Kokeena: doors and casework for Ikea cabinets
  • Panyl: vinyl wraps for Ikea furniture
  • Bemz: covers for Ikea couches and chairs

On Etsy, you’ll find dozens of smaller companies hawking handmade legs, brass knobs, shelf inserts, and sofa covers specifically crafted to fit Ikea furniture lines.

Monica Born quit her copywriting gig 10 years ago to found Superfront with her husband Mick, after noticing that many of her friends in Sweden were commissioning their own pricey Ikea replacement doors from local carpenters.

In Sweden, where 90% of residents own Ikea furniture, she sensed an opportunity to streamline and normalize the customization process.Today, the business offers cabinet doors, handles, and legs compatible with Ikea’s 4 best-selling furniture lines.

Born says the company is on track to hit ~$8m in annual sales this year — a 50% bump from last year. “It’s becoming more and more [common] to tell your dinner guests that you repurposed something,” she says. “It’s cool to say, ‘We thought it was crazy to throw away that piece of Ikea furniture so we redesigned it instead.’”

Jana Kagin left a career in psychology to launch the Stockholm-based Ikea customizer Prettypegs in 2012. “Ikea is such a huge part of Sweden’s DNA — it’s in our breast milk,” she says. “But a lot of people want to differentiate from the mass-produced. We offer a more affordable option by pairing DIY with high-end design.”

As an example, she cites a customer who was able to reconstruct a $1.5k West Elm console for $288 using a set of Prettypegs legs ($60), knobs ($28), and a bit of DIY handiwork.

Demand is so high, she says, that it’s been hard to keep items in stock. “When we first started, we thought, ‘It’s just furniture legs, it’s not rocket science!’ But everything becomes rocket science as a business scales,” she says. “Logistics, hardware, packaging, lacquer, paint — there are so many moving parts that have strained supply chains right now.”

While many of these companies are based in Sweden, some entrepreneurs have found success focusing on the US market. Lotta Lundaas, the founder of Norse Interiors, based in New York City, says her company is on track to hit $1m in sales just 3 years after launching — a 3x increase year-over-year.

Lundaas leveraged her background as an online marketer to identify which Ikea products to offer custom cabinet doors for, reverse engineering the company’s best sellers by looking at search volume data.

The Copenhagen-based startup Reform has taken a different route. Launched in 2014 with the aim of customizing Ikea kitchen cabinets, the company has since moved into offering its own product lines. But it has trouble keeping its prices appealing to the Ikea demographic.

“It’s hard to match Ikea’s economies of scale,” says Scott Bird, the company’s managing director. “They sell some of their products at a price that’s lower than what we can even source them for.”

But these economies of scale come with a price.

An antidote to ‘fast furniture’

Beyond design, Ikea hacking aims to tackle a larger problem: the scourge of so-called “fast furniture.”

In the 1950s, furniture was seen as a generational investment that would last decades. Today, the average couch lasts just 6 years. Each year, Americans discard 20m tons of furniture — a figure that has doubled in the last decade.

Ikea — a company that uses 1% of the world’s entire wood supply and has encouraged customers to frequently replace furniture in the past  — is at the center of this problem.

Part of the stated mission of Ikea hacking, and the upcycling movement at large, is to extend the lifespan of furniture.

In its own independent research, Prettypegs found that a simple design change could result in a person keeping a piece of furniture 20% longer. The company estimates that it has helped customers hold on to 19k pieces of Ikea furniture, saving 179 tons of CO2 emissions.

Consumers are increasingly concerned about the environmental impact of their purchases: In our survey, 60% of respondents said eco-friendliness is an important consideration when buying home furnishings.

A report by the Retail Industry Leaders Association found that:

  • 93% of global consumers expect the brands they use to address and consider environmental issues
  • American consumers will spend up to 20% more on products that are environmentally friendly.

For its part, Ikea has announced buy-back programs and plans to be “climate positive” by 2030. But for consumers who already have a house full of Ikea furniture, a little redesigning and repurposing may be the greenest course of action.

“We’re all in the business of making Ikea products last longer,” says Cagin, of Prettypegs. “We want to turn fast furniture into slow furniture.”

 By: Zachary Crockett @zzcrockett

Source: The thriving business of ‘Ikea hacking’

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Critics:

IKEA is a conglomerate that designs and sells ready-to-assemble furniture, kitchen appliances and home accessories, among other goods and home services. Founded in Sweden in 1943 by 17-year-old Ingvar Kamprad, IKEA has been the world’s largest furniture retailer since 2008. The brand used by the group is an acronym that consists of the founder’s initials, and those of Elmtaryd, the family farm where he was born, and the nearby village Agunnaryd (his hometown in Småland, southern Sweden).

The group is known for its modernist designs for various types of appliances and furniture, and its interior design work is often associated with an eco-friendly simplicity. In addition, the firm is known for its attention to cost control, operational details, and continuous product development that has allowed IKEA to annually lower its prices by an average of two to three percent.

INGKA Holding B.V., based in the Netherlands, owns the IKEA Group, which takes care of the centers, retails, customer fulfillment, and all the other services related to IKEA products. The IKEA brand is owned and managed by Inter IKEA Systems B.V., based in the Netherlands, owned by Inter IKEA Holding B.V. Inter IKEA Holding is also in charge of design, manufacturing and supply of IKEA products.

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