Investors banking on market momentum to extend this year’s broad stock rally and boost their portfolios may need to start doing a little more homework.

“The probability of being wrong is higher now than before the rally,” says Cameron Hight, president and founder of Alpha Theory, a firm advising money managers on risk-adjusted returns.  “I’m amazed by how many fund managers don’t want to do the work on how certain positions will affect their portfolio.”

Many bullish investors have been saying for months now that there’s plenty of ammo left to extend the stock gains.  They point to mountains of available cash and a presumed plethora of fund managers who missed at least part of the move off the March lows.

But analysts say these are specious arguments for elevated equity prices.

“Sideline money is hard to read,” says Russ Kinnel, director of mutual funds research at Morningstar.  “A lot of that is dependent on if the economy is about to shed more jobs or not.  If people are feeling worried about job security again, they’re going stop buying mutual funds and keep it in money markets.”

BofA Merrill Lynch reports that individual investors have $877.3 billion parked in money market funds.  That sounds like a lot, but it’s already down 20% from the record levels reached as the credit crunch took hold and stocks swooned in October 2008.

Institutional investors have moved more slowly, drawing down just 5% of money market funds from the record high $2.56 trillion set in June.

The mound of cash represents possible demand for stocks, but so far it has not been a big factor. 

Band of America’s (BAC) Merrill Lynch investment banking unit reports that cash has been coming off the sidelines at a record pace, but it has not flowed into stocks.  Instead, it is flowing into bonds at an unprecedented rate.

“We are definitely seeing a huge amount of money going into bond funds, from both retail and professional investors,” says Morningstar’s Kinnel.  “The hottest selling fund is Pimco’s total return fund (PTTRX).  Whether that is really institutional money or financial planners, it’s hard to know.”

And the jury is still out on whether scores of fund managers are playing catch-up to the S&P 500’s performance this year.  If so, they may need to buy more shares of winning stocks and place bets on others to rally hard into year’s end.

“You can debate whether fund managers missed the rally, but it’s clear that some fund investors missed it,” says Kinnel.  “They missed out in a big way.  Some of the stocks that rallied hardest, some funds didn’t own them or make the switch.”

Morningstar tracks mutual fund performance and provided data to Fox Business on 503 large-cap, actively-managed mutual funds holding $533.8 billion in assets.

Fewer than half (43%) of these portfolios are beating the benchmark S&P 500 from the March lows through the end of September.  62% of these funds, however, have outperformed the S&P 500 through the first nine months of this year. 

Hedge fund performance is more difficult to gauge, since they are not subject to the same public reporting requirements as mutual funds.  Hedge Fund Research (HFR) tracks the industry and its data show these small, exclusive investment pools have not kept up with the stock market’s torrid pace.

HFR’s weighted index of hedge funds has returned 17% this year through September.  That’s just 2% lower than the S&P 500’s gain during the same period, but the hedge fund index has underperformed the S&P 500 by some 30% since March.

This relative underperformance does not necessarily mean hedge fund managers are ready to jump on the bandwagon and buy stocks. 

In fact, Alpha Theory's Hight says most of his clients are “leery” after the big gains this year.  “A majority of people think the market is ahead of itself from a valuation standpoint,” he says.  “There’s a greater focus on fundamental investing now than in at least a year.”

Hight is not concerned about waning momentum or predicting where the broader market’s going next.  His advice is simple, do your homework:  “The only way to make money is to find good cash-flow assets and invest in them, irregardless of where the market’s going in the short term.”