Recently Reopened Mutual Funds: Any Interesting Ones?

open door Around the new year, many previously closed mutual funds reopened their doors to new investors, including such well-known names as Fidelity Magellan (FMAGX) and Oakmark International (OAKIX), after a rough second half of 2007. For investors who had an eye on these funds, but were denied access due to the closure, the reopening present an opportunity to get into the doors of some good funds.

Why do funds close and reopen?

The main reason for a fund to close to new investors has a lot to do with the fund’s past performance. It is one way to prevent the fund’s assets from growing too big, which could force the fund manager to invest the extra cash in companies that don’t fit in the fund’s investment style. This is particularly true for mid- and small-cap funds, which have seen some good time in the past few years (for example, the small-cap dominated Russell 2000 Index has a 5-year return of 16.25%). As investors chase hot funds with big returns, billions of dollars from new investors were poured into small-cap funds, specialty funds, and foreign funds. While the pace of a fund’s growth can serve as an indicator of whether the fund manager is *successful* or not, the problem with too much cash on hand is that the fund manage may end up buying something that he/she doesn’t really want to buy. And that could push the fund out of its original investment style and hinder its performance. To prevent such a dilemma, funds seeing rapid growth in assets can choose to close them to new investors to limit the cash inflow.

If a fund’s close indicates too much cash than the fund’s manager can handle, a fund’s reopen usually means the opposite: the lack of fresh money to invest. Fidelity’s Magellan is an example of how redemption and short of cash flow have become an obstacle for the fund manager to invest in the areas where he sees opportunity.

Closed fund -> Better return?

Not necessarily.

Though the impression investors get when a fund manager closes a fund is the manager is taking measures to maintain the fund’s performance. However, many times a closure is not really a *prevention*, but a *cure* because by the time a fund closes, its assets may have already become a burden. Plus, closing a fund won’t stop the growth of its assets as in most cases existing investors can still invest in a closed fund, keeping it growing.

Among the 10 actively managed funds I own, two are closed to new investors: Dodge & Cox Stock (DODGX) and Buffalo Small-Cap (BUFSX). For DODGX, the fund had $29B in assets when it was closed in January 2004. Currently the fund’s assets is $63 billion, more than doubled in three years, and show no sign of slowing down as existing shareholders continue to add money to the fund. How did DODGX perform since its closure? The fund’s returns against the S&P 500 index in the past four years are: 2004: +8.3%, 2005: +4.5%, 2006: +2.7%, and 2007: -5.4%. Not a very good example to show the effectiveness of the closure. In contrary, I see this as a perfect case of what bloated assets could do to a great fund.

Past performance doesn’t guarantee future return, whether the fund is open or closed.

Recently reopened funds

According to Morningstar, the following funds recently reopened to new investors. Do you see any interesting ones that you want to invest in?

Third Avenue International Value (TAVIX)

  • Fund category: Foreign small/mid-cap value
  • ER: 1.45%
  • Yield: 3.57%
  • Front load: 0.0%
  • Minimum initial investment: $10,000
  • 3-year return: 10.88%, 5-year return: 20.86%

Longleaf Partners (LLPFX)

  • Fund category: Large-cap blend
  • ER: 0.90%
  • Yield: 0.20%
  • Front load: 0.0%
  • Minimum initial investment: $10,000
  • 3-year return: 4.94%, 5-year return: 10.08%

Tweedy, Browne Global Value (TBGVX)

  • Fund category: Foreign small/mid-cap value
  • ER: 1.37%
  • Yield: 1.45%
  • Front load: 0.0%
  • Minimum initial investment: $2,500
  • 3-year return: 10.33%, 5-year return: 15.83%

First Eagle Overseas (SGOVX)

  • Fund category: Foreign small/mid-cap value
  • ER: 1.37%
  • Yield: 1.45%
  • Front load: 5.0%
  • Minimum initial investment: $2,500
  • 3-year return: 14.24%, 5-year return: 19.70%

First Eagle Global (SGENX)

  • Fund category: World allocation
  • ER: 1.13%
  • Yield: 2.16%
  • Front load: 5.0%
  • Minimum initial investment: $2,500
  • 3-year return: 13.81%, 5-year return: 18.29%

Oakmark International Small Cap (OAKEX)

  • Fund category: Foreign small/mid-cap value
  • ER: 1.37%
  • Yield: 0.87%
  • Front load: 0.0%
  • Minimum initial investment: $1,000
  • 3-year return: 9.48%, 5-year return: 21.01%

Oakmark International (OAKIX)

  • Fund category: World allocation
  • ER: 1.05%
  • Yield: 0.69%
  • Front load: 0.0%
  • Minimum initial investment: $1,000
  • 3-year return: 11.25%, 5-year return: 17.45%

Westport Select Cap (WPSRX)

  • Fund category: Mid-cap blend
  • ER: 1.32%
  • Yield: 0.53%
  • Front load: 0.0%
  • Minimum initial investment: $1,000
  • 3-year return: 6.97%, 5-year return: 11.55%

Royce Low-Priced Stock (RYLPX)

  • Fund category: Small-cap blend
  • ER: 1.46%
  • Yield: 2.48%
  • Front load: 0.0%
  • Minimum initial investment: $2,000
  • 3-year return: 9.19%, 5-year return: 15.00%

Royce Micro-Cap (RYOTX)

  • Fund category: Small-cap blend
  • ER: 1.43%
  • Yield: 2.48%
  • Front load: 0.0%
  • Minimum initial investment: $2,000
  • 3-year return: 12.05%, 5-year return: 19.18%

Royce Opportunity (RYOFX)

  • Fund category: Small-cap value
  • ER: 1.29%
  • Yield: 0.38%
  • Front load: 0.0%
  • Minimum initial investment: $2,000
  • 3-year return: 5.31%, 5-year return: 16.90%

Fidelity Magellan (FMAGX)

  • Fund category: Large-cap growth
  • ER: 0.53%
  • Yield: 0.42%
  • Front load: 0.0%
  • Minimum initial investment: $2,500
  • 3-year return: 7.23%, 5-year return: 10.41%

FPA Crescent (FPACX)

  • Fund category: Large-cap growth
  • ER: 1.25%
  • Yield: 2.73%
  • Front load: 0.0%
  • Minimum initial investment: $1,500
  • 3-year return: 8.58%, 5-year return: 12.24%

T. Rowe Price High-Yield (PRHYX)

  • Fund category: High yield bond
  • ER: 0.77%
  • Yield: 7.74%
  • Front load: 0.0%
  • Minimum initial investment: $2,500
  • 3-year return: 4.65%, 5-year return: 8.60%

BTW, also check out these recently reopened funds:

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3 Responses to “Recently Reopened Mutual Funds: Any Interesting Ones?”

  1. CiaranFromChance |  Jan 29, 2008 at 1:01 am

    Great information on why funds open and close. I’ve gotten that question many times and you explained it well.

    I’d add that having too much money in a fund and the fund loses it’s nimbleness. It makes it that much harder for the managers to build an equity position (or scale out of it) without drawing undue attention, potentially adversely affecting the price of order fills and the fund NAV in the long run.

    Gave it a Stumble;)