When a good fund closes
|
|
July 5, 1999: 12:32 p.m. ET
Experts have some tips if you want in -- but they say it isn't always a good idea
|
NEW YORK (CNNfn) - Pssst. Have you heard about Longleaf Partners Fund? Great long-term returns, and the same management team at the helm for years?
Too bad. The fund is closed to new investors, just like Fidelity's flagship Magellan Fund and Harbor International Fund.
Many people probably know the frustration of learning about a great mutual fund with stellar returns only to realize it is closing to new investors.
What happened, you wonder?
"Funds close for two reasons," said Sheldon Jacob, editor of the newsletter No-Load Fund Investor. "They've gotten too large or there's too much money flowing in."
The problem is once a fund starts getting hot, investors pour money in. The faster the cash comes in, the harder it is for the manager to keep it invested. Even worse is when "hot money," or short-term investors, comes into the fund. Managers have to keep buying and selling shares, which can be disruptive. The problem is especially tough for funds that invest in small cap stocks.
But there are some ways to try and get into a closed fund, according to David Harrell, an analyst at fund-tracker Morningstar. You can ask a friend or family member to sell you some shares, since most funds don't close for existing shareholders, he said.
You could also try to go through a broker or a financial planner, Harrell said. Some funds have an agreement whereby they'll continue to sell shares to the professionals, he said.
Or, you could try Jack White, a discount brokerage based in San Diego, according to Harrell. The company's "Connect" program pairs a fund buyer and a fund seller, so you can buy shares of a fund from another investor.
Another option is to wait, since funds reopen from time to time, Harrell said. For example, Vanguard's former flagship Windsor Fund announced it was reopening June 1 after nearly 10 years.
But Jacob said you shouldn't always be rushing to get into a closed fund. He's seen many cases where funds don't perform well once they close.
"My general advice is if you hear a fund is about to close, let it close," Jacob said. "Don't rush in."
And investors should definitely stay clear if they hear about a fund that announces it will close in a few months, rather than immediately, Jacob said. That is usually a ploy to create a buzz.
"They're trying to seem more desirable to you," Jacob said. "If it says it will close in three or four months I would avoid it like the plague."
But cheer up if you've missed the boat with a fund that seems perfect for your portfolio. If there is a bear market, all funds will reopen, Jacob said.
|
|
|
|
|
|