When you invest in mutual funds, you probably expect the managers to be a bit more creative than you'd be with your piggy bank, yet a recent survey shows cash levels are on the rise in many portfolios.

A hefty cash stake can dent long-term returns and may irk individuals who wish to be fully invested at all times, but experts say it's not always a negative. While a large chunk of uninvested change could be a warning signal that a portfolio has grown too large too quickly, it may also reflect a disciplined investment strategy, said Todd Trubey, a mutual fund analyst with Morningstar Inc. In the latter case, cash levels tend to grow when valuations are on the rise and bargain-price stocks are scarce.

"We are seeing a lot of managers, especially those for whom valuation is really important . . . build up cash stakes that are higher than historical averages," Trubey said. "It's something we are seeing some very good managers do right now."

According to a survey conducted by Merrill Lynch in early July, 19 percent of all fund managers describe themselves as overweight in cash, and the mean cash balance in portfolios stands at a relatively high 4.1 percent. Among asset allocators -- those who invest in both stocks and bonds -- 23 percent say they are overweight in cash, up from 18 percent in the previous month.

This suggests a reticence to take on risk, which Merrill found somewhat surprising given that many managers expressed confidence in global growth and expect corporate profits to improve. Some of the caution could be due to inflation worries; 37 percent of those surveyed expect global core inflation to be higher a year from now, versus 22 percent in June. There may also be some doubts about the ability of companies to raise prices.

Many value-minded money managers have seen their cash levels rise over the past year amid a dearth of attractive investment opportunities. Even Warren E. Buffett's Berkshire Hathaway Inc. ended 2004 with $43 billion in cash equivalents. Having such a large cash stake is "not a happy position," Buffett lamented in his annual letter to shareholders in March, but he'd "struck out" in attempts to find suitable investments.

In mutual funds, the same has been true for many small-cap value portfolios. Cash levels at FPA Capital Fund (FPPTX), which closed to new investors last year, stood at 29.8 percent at the end of June. Manager Robert L. Rodriguez seems to be sticking with a strategy he outlined at this time last year, when he complained of "slim pickings" in his asset class; at that point, his cash stake had swollen to nearly 40 percent.

Similarly, the level of cash at the small-value Ariel fund (ARGFX) climbed to the mid-20 percent range during the past quarter, though it has since dropped to 16 percent as the firm found new opportunities, said Charles K. Bobrinskoy, vice chairman of Ariel Capital Management LLC.

Ariel's rise in cash levels was partly due to a number of key holdings being purchased by large corporations and private equity firms, Bobrinskoy said. These included casino operator Caesars Entertainment Inc., acquired by Harrah's Entertainment Inc. last month, and high-end department-store retailer Neiman Marcus Group Inc., purchased by a group of private equity firms in May. Other holdings were sold off as they reached their price targets during the recent run-up in small-cap stocks, he said.

"Both of those two factors are very nice problems to have: companies being acquired, producing a great return for your investors, and companies having their stocks perform so strongly they reach your valuation requirements," Bobrinskoy said. "The second part of this equation is that we have found it challenging to find new names that meet our valuation and quality criteria."

At Ariel, where the motto is "slow and steady wins the race," buy-and-hold is the rule, and portfolio turnover is quite low -- about 20 percent, compared with about 200 percent at other funds. The typical holding period for a stock in this fund is about five years, so when manager John W. Rogers Jr. buys a new issue, he doesn't do it lightly.

"If we thought that we were no longer able to find good opportunities to invest our cash in new names, we'd have to consider closing the fund. But we are starting to find new names," Bobrinskoy said. "Secondly, small-cap value has had a very good run for a very long time. Those conditions tend not to last forever, which means there could be more opportunities to invest in good-quality companies in the future."

High cash levels are not exclusive to small-cap offerings. In fact, a double-digit cash or bond stake is typical for the Clipper Fund (CFIMX), a large-value portfolio that serves as a core holding for many investors. In the quest for investments trading below fair value, this team-managed offering frequently takes large positions in controversial companies, and its managers aren't afraid to let cash collect if they can't find stocks that meet their criteria. Clipper currently holds 26.9 percent in cash.

A high level of cash should raise a red flag for individual investors when it develops very rapidly, said Trubey of Morningstar, because that could be a sign the manager is unable to control the money coming in. There's less cause for alarm when cash stakes build over time because a manager has chosen to hold off on purchases for valuation reasons.

Whether a fund's high cash stake is okay with you is a personal preference. Investors who like to exercise a lot of control over their portfolios, including how much cash they hold, may prefer funds that are fully invested. Others may rather leave the matter to professional investors, but they should always be aware of how it fits in with the rest of their portfolio.