Funds’ Cash Reserves Are Running High : Investments: Money managers holding more ‘liquid assets,’ reflecting the stream of money pouring in.

NEW YORK â€”  Nearly 10 cents of every dollar in stock mutual funds these days isn’t invested in stocks at all.

It’s parked in what money managers call “cash� or “liquid assets�--mostly short-term interest-bearing securities such as Treasury bills and commercial paper issued by corporations and other entities.

The percentage of total assets in cash varies greatly from one fund to another, and it can be a significant factor to consider in mapping any strategy for investing in stock funds.

“Funds hold cash reserves for a number of reasons,� says Norman Fosback, editor of a group of investment advisory letters published by the Institute for Econometric Research in Fort Lauderdale, Fla.

“Historically, about 4% to 5% of portfolios is kept in cash simply as a convenience for day-to-day operations, because securities are constantly being bought and sold and because fund shareholders are continually buying and redeeming shares.�

Lately the industry’s overall liquid-assets ratio, as reported by the Investment Company Institute, has been running about twice that high. At midyear it stood at 9.1%, compared with a springtime peak of 10.3% and 9.6% at the end of June 1992.

To some extent, the recent high figures simply reflect how hard it can be for fund managers to put money to work as fast as it has been flowing in from investors, who have been buying at a record pace.

It also betokens a high degree of caution among those fund managers, faced with what many of them see as a shortage of bargains in the stock market.

“The funds have tremendous buying power today, which is bullish,� says Fosback.

“At the same time fund managers, by virtue of holding substantial excess cash reserves, are relatively pessimistic, which is also bullish. Fund portfolio managers are not sophisticated in their market-timing judgments.�

Indeed, many fund managers do not even try to time the market, preferring instead to concentrate on stock selection, where they think they can gain the biggest advantage.

“We try to stay relatively fully invested,� says Dan Miller, portfolio manager of the Putnam New Opportunities Fund in Boston. “I like to manage money in the style they’re paying me for.�

With some types of stock funds, a large cash position usually makes no sense--sector funds focused on a specific industry, for instance, and standard index funds, which are set up to mimic the behavior of a stock-market index.

“A majority of aggressive growth funds do not time the market to any significant degree,� adds Sheldon Jacobs in his annual Handbook for No-Load Fund Investors, published in Irvington-on-Hudson, N.Y.

“However, a sizable minority (perhaps a third) of aggressive growth funds do. In a bear market, 20% to nearly 100% of their assets may be in cash.�

Whether it is possible to succeed as a market timer is the subject of a debate that is about as old as the history of finance.

Supposing that you think you can do it, and want to try, there are still some questions to be answered before you invest in a fund that actively varies its liquid-assets ratio.

“If you favor market timing,� Jacobs suggests, “choose a fund that is always fully invested, and then move back and forth yourself between the stock fund and its companion money market fund.

“If you’re a buy-and-hold investor, or want the fund to market-time for you, select those funds that demonstrate their adroitness.�

If a fund misjudges a decision to hold a large cash reserve, it risks incurring a special kind of wrath from its shareholders, when they see that stock prices are rising and their fund’s net asset value isn’t keeping up.

But many of those same investors overlook the fact that they themselves may be chronically “underinvested,� sitting on money in low-interest savings accounts or just plain currency--the ultimate form of cash reserves.