In this brutal market, mutual funds that have kept a large stash in cash have performed best, according to Morningstar. Plus, these funds are best-positioned to take advantage of the market once it turns around. "Many of the funds that held up the best in this brutal market have one thing in common-cash," said Greg Wolper, a Morningstar analyst.
Funds with money stashed on the sidelines not only have an advantage when the market plunges, but if manager's stock picking is on target, they could do well in an economic recovery. Those with large cash positions can buy both cheap growth and value stocks in companies with good long-term earnings potential. They are also better positioned to honor redemptions without being forced into untimely sales of positions.