You're thinking about some good and important issues, but I want to point out that investing is not philosophy - there are numbers we can analyze here.  Your first point is theoretically true but practically impossible to implement.  Your second point is false and, if true, would invalidate the rest of your argument.  Here's an article about outflows: http://www.asianinvestor.net/article.aspx?CIaNID=79445 I don't know that pension/private data is as easy to find, but equity mutual funds are experiencing net outflows.  Here are some other numerical questions you need to answer:  

What do you have in your portfolio?  How do you know these funds/managers are superior to peers?  How do you know that historical outperformance will lead to future outperformance (it probably won't).  If your funds are the best, why are other people in other funds?  Do you have any advantage over other sophisticated investors?

What's your current stocks-bonds-cash allocation (put it in the M* portfolio and analyze)?  How much of this allocation is chosen by and you and how much by fund managers (i.e. do you hold a small number of go-anywhere balanced funds, or have you chosen funds that give you certain allocations to U.S. corporate bonds, international small-cap stocks, etc.?)   

At what point did your managers develop their cash stakes (i.e. did they sell close to last year's highs, or did they sell yesterday?)  In a rally or a sustained bull market, how much of a drag do cash stakes create on mutual fund returns? 

These questions all need to be answered numerically if your analysis is to be useful.

I can tell you that according to Bogle's "Common Sense on Mutual Funds", mutual fund managers as a group have totally failed to time the market and hold cash at the right times.  Almost no one went to cash anywhere near the peak of the 90s market, and a lot of funds held cash through the recovery.  You have to be right twice to profit here - get out at the right time and get back in at the right time.  In between, the money is earning returns lower than historical stock market returns, especially now when MM/Treasury/legit AAA bond yields are so low.  You also have to have conviction - a manager could actually underperform the market by buying heavily last year, selling off in March, buying in May, selling this week, etc.  The market does not move like a seesaw - it zig-zags in ways we'll never see coming.