• / Free eNewsletters & Magazine
  • / My Account
Home>Research & Insights>Investment Insights>Will These Hot-Selling Small-Cap Funds Close in 2011?

Related Content

  1. Videos
  2. Articles
  1. Fidelity's Standout and Up-and-Comer Equity Funds

    Morningstar senior analyst Chris Davis gives a progress report on Fidelity's equity fund enhancement initiatives, notes areas for further improvement, and offers his take on the cream of the crop.

  2. Jacobson's Picks for Core Bond Exposure

    Morningstar's director of fixed-income research offers his tips for selecting a solid core bond fund along with some of his favorite choices.

  3. Checking the Scorecard on Fidelity Funds

    Morningstar senior fund analyst Christopher Davis sizes up performance and stewardship at the fund family and discusses some of his favorite Fidelity funds.

  4. Carlson: Investors Got Complacent About Emerging Markets

    Morningstar's 2011 Fixed-Income Manager of the Year John Carlson outlines his strategy for Fidelity New Markets Income going into last year and what he expects for 2012 and beyond.

Will These Hot-Selling Small-Cap Funds Close in 2011?

Thanks to 2010 inflows, there are no guarantees these funds will be open long.

Russel Kinnel, 01/31/2011

Get mutual fund and stock information from our analyst team delivered to your e-mail inbox every Tuesday. Sign up for our free Investment Insights e-newsletter.

It's fund-closing season. We are nearly two years into a strong market rally and the fund closings are starting to come fast and furious. IVA, Calamos, Wasatch, Perkins, and WHG are among the fund companies to have closed a fund.

To get a handle on some possible closings this year, I pulled up a list of still-open small-cap funds with sizable inflows in 2010. Funds typically close in order to avoid growing too large to effectively employ their strategies or to stem the tide of inflows, which can present problems regardless of total assets under management.

I wouldn't necessarily rush to get in simply because a fund is closing, but if you had your eye on the fund, consider this a nudge to decide sooner rather than later. The reason you don't need to rush is that there is something of a contrarian indicator in closings. They typically happen when a fund's asset class and/or strategy are riding high. Generally, performance after a fund closes tails off a bit, though it would have been worse had the fund not closed.

Here, then, are the small-cap funds with the greatest 2010 inflows, along with my guess as to whether they will close. I have left out index and institutional funds.

Janus Triton JATTX
2010 inflows: $710 million
This fund operates on the border territory between small-cap and mid-cap, with a targeted cap range between $1 billion and $4 billion. As a result, it should be able to handle a little more money than a typical small-cap fund. Currently, it has $1.2 billion in assets. Managers Chad Meade and Brian Schaub have produced outstanding results in four years at the fund, applying a fairly straightforward growth strategy. They run a relatively diffuse portfolio, which should also help with asset growth. On the other hand, flows are accelerating, as the fund took in $400 million in the fourth quarter of 2010 alone. A couple more quarters like that and they may well close.PAGEBREAK

Fidelity Small Cap Discovery FSCRX
2010 inflows: $686 million
Chuck Myers is one of my favorite managers at Fidelity, and his strong performance is gaining attention. His investment style is more Buffett than Peter Lynch, as he is a patient and focused investor. The fund is now up to $1.2 billion, which is sizable by small-cap standards, but is far from a rainmaker at Fidelity. My guess is the fund will be allowed to grow a bit more before closing. However, Myers' style seems to suggest that this one should be closed sooner than other Fidelity small-cap funds.

Wasatch Emerging Markets Small Cap WAEMX
2010 inflows: $669 million
This newish fund has put up big returns, so it's no surprise that it's drawing cash. Consider its three calendar-year performances: negative 57%, 118%, 41%. That works out to a 12.2% annualized three-year return and tops the emerging-markets category. Those annual returns tell the story pretty well about what happens when you take a volatile asset class and then buy small-cap stocks in it. The fund is up to $849 million in assets. That leaves some room for it to grow, but Wasatch is pretty vigilant about closing funds. Wasatch Small Cap Growth WAAEX just closed with assets at $1.4 billion. While I can see why emerging-markets small caps are exciting, I can't be really jazzed about a fund charging 2.06%.

blog comments powered by Disqus
Upcoming Events
Conferences
Webinars

©2014 Morningstar Advisor. All right reserved.