Over the past several months, mutual fund portfolio managers have been scaling back their cash reserves, holding fully invested, diversified portfolios, The Wall Street Journal reports.

“Cash levels are plunging to what might be their lowest levels of all time,” said Bank of America strategist Thomas McManus. At the beginning of May, equity funds had only 3.6% of their assets in cash.

“Fund managers now seem less prepared for potential weakness,” McManus said. “These days, cash is more of an operational decision [than a defensive hedge] on many portfolio managers’ minds.”

Because funds are successfully focusing on their specific investment niche or style, fewer are using cash as a strategy, McManus said. “In fact, they want to keep cash as tiny of a position as possible,” he said.

In addition, he noted, many funds are putting limits on how much cash they can hold. And with an increase in the number of index funds that track a set benchmark, cash holdings are also decreasing.

Should a fund need to honor redemptions, they can turn to lines of credit at other financial institutions, said Ray Benton, a financial adviser in Denver. “Cash is seen as more of a drag these days by a majority of stock fund managers. You can see that in the fact that more funds are using hedge-like strategies these days as an alternative to cash.”

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