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Here's one upside to a down market: a number of historically prominent mutual funds that long ago shut their doors to new investors are reopening. It's been years since anyone without an existing account could put money into some of the best-known names in the business, like Sequoia Fund, Dodge & Cox Stock, Longleaf Partners, Fidelity Magellan, Artisan Mid Cap Value, Oakmark Equityand Income, Vanguard International Explorer and Third Avenue Small-Cap Value...
...even if a fund has a stellar long-term track record, do you really want to be hopping in at a time when recent performance has been dismal and other investors are headed for the door? "To get into some the best funds, you often have to do it when things aren't going great," says Russ Kinnel, director of fund research at the investment analysis shop Morningstar. "Virtually all of these funds have lost money since they reopened. You can't argue it's some magical low point...
...things to look for are, to some extent, the same as they always are - low expenses and solid management. With reopened funds, it's especially important to make sure the people making the investment decisions are the same ones who created the great track record that made the fund so admired in the first place. The Sequoia Fund, for example, was long run by the legendary investor Bill Ruane, but he died...
...also worth asking what sort of effect redemptions are having on the fund itself. Funds that buy and sell the stocks of large companies should have a fairly easy time getting out of positions, says Kinnel, but funds that focus on less-liquid sectors can wind up in a vicious cycle of having to sell holdings at fire-sale prices. There are a number of reopening high-yield bond funds; those might be worth staying away from for the moment. (Read about Hedge Funds: How the Smart Money Looked Dumb...
...risk with waiting around, though, is that a fund that closed once before in order to protect current shareholders is likely to do it again. One idea that Stanasolovich floats is investing the minimum amount required - often $2,000 - in order to lock in as a shareholder; existing investors normally can keep putting in more money even after a fund is closed...