NEW YORK (MONEY) - This year, we've wistfully let go of eight funds because they either grew so popular that they closed to new investors or they lost a talented manager who was integral to their past success. A ninth, Longleaf Partners Realty, was liquidated because the managers were not finding enough investments that met their demanding criteria.
If we can find a way to hold on to tried-and-true managers, we do. When Kern Capital Management's Fremont U.S. Micro-Cap closed in 2000 (it has since reopened), we took on the firm's Fremont U.S. Small Cap instead. We lost another member of the '98 lineup when Sarah Ketterer and team left Mercury HW International Value (formerly Hotchkis & Wiley International) last year. This year, we're thrilled to welcome the crew back, with the new Causeway International Value.
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We can't say we're sorry when funds close. One sure sign of a great manager is a willingness to close a fund to avoid being overwhelmed with cash; the pressure of putting a flood of new money to work can lead a manager to tamper with a successful strategy. If you already own one of the six MONEY 100 funds that closed in the past year, consider yourself lucky. And if you don't, keep an eye out for reopenings, particularly at Fidelity Low-Priced Stock: This $18 billion behemoth may well reopen after it digests recent inflows. Manager Joel Tillinghast has an unusual knack for running a truckload of money in true small-value fashion.
We dropped MSIF Mid Cap Growth and Small Cap Growth because their lead manager, Arden Armstrong, left Morgan Stanley early this year. Since the new managers don't have lengthy track records, we can't wholeheartedly endorse them. But that doesn't mean you shouldn't hang on and give them a chance, especially if selling your funds would create a tax bill. Indeed, the fact that we have dropped a fund is never enough reason for a current investor to bail out. We're committed to presenting a list of what we believe to be the best 100 funds to buy now. Just because a fund fails to make the cut doesn't mean it's a clunker. For one thing, we omit many solid funds simply because we already have plenty of outstanding choices in a particular style.
Other funds disappear from our list because they no longer consistently outperform peers with similar investment styles. This year, we culled out SSgA Growth & Income, Homestead Value and TIAA-CREF Growth Equity because of their prolonged subpar results. Again, just because these funds don't qualify for a list of today's best, doesn't mean they are automatic sells for every owner. We believe we had good reason to drop Jean-Marie Eveillard's SoGen International in 1999: Its performance was suffering and the firm running it was on the block. After the fund was smoothly integrated into the First Eagle family, we brought it back in 2001. Now called First Eagle SoGen Global, the fund gained 15.8 percent over the past year.
Finally, while the socially conscious Domini Social Equity has done fine for a large-cap fund, we think its 0.92 percent expense ratio is high for an index fund. There is now cheaper competition that wasn't available when we chose it in '98. We've replaced it with the two-year-old Vanguard Calvert Social Index.
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