It pays to look at reopenings critically, but don't forget to keep an open mind.
We aren't always enthusiastic about these events. One reason is that we worry that investors will view them as automatic buy signals, when they should be digging into their fundamentals or perhaps looking around for more attractive, perhaps more suitable, available funds. Another reason is that fund closings often take place when a fund category is rallying, and subsequent reopenings may occur ahead of a weakening or reversal of a hot streak. Or we may not like a newly available fund for reasons having little to do with the reopening itself--including its manager's experience, its expenses, or its stewardship situation.
But there are certainly cases in which we like just-reopened funds, and we discuss a few such offerings in detail below. In a few instances, we came across funds that we like for the long term that we decided not to include in this article. We weren't as confident that they would hold up well if their areas of focus--for instance, domestic or international small caps or emerging markets--cooled off, which would leave many new investors disappointed.
This fund probably won't suit style purists. While most moderate-allocation funds invest in large-cap stocks and investment-grade bonds, this one holds stocks across market-cap ranges, invests in distressed debt and convertible bonds, holds gobs of cash at times, and may even sell stocks short. It's easier to get comfortable with this amount of flexibility when a seasoned hand is at the controls. Steven Romick, who has been running this fund for nearly a decade and a half, has led it to great long-term marks and, more importantly, has steered it to very steady results. Investors seeking a fund that will hold up in troubled times will likely be happy here. Our one quibble is that the fund is on the pricey side.
We're very happy with the unusual approach that this Analyst Pick's managers took in reopening this fund. Great stewards treat owners of their funds as partners and try to make decisions for the good of the funds rather than for the benefit of the entity advising them. So instead of opening the fund to all new investors--and perhaps attracting large inflows from fickle types--they simply invited current shareholders of the Longleaf funds to invest more money. And doing so looks like a good idea to us, as the managers are finding new opportunities as stock prices have fallen in recent months. This fund also has credentials as a super option in choppy markets, as well as many other outstanding traits.
T. Rowe Price High-Yield
There aren't that many closed bond funds, but those trafficking in areas with less liquidity, such as high-yield (taxable or municipal) bonds, are slightly more likely to turn off the tap. This Analyst Pick let people back in early last year, as manager Mark Vaselkiv and team saw the junk-bond universe expanding because of high-profile downgrades and leveraged-buyout activity. Conditions in the high-yield sector have become dicier since then, but the fund has stood tall. Relative to his rivals, Vaselkiv strikes a more conservative profile by owning higher-rated high-yield bonds as well as bank loans. We expect the fund's absolute performance to ebb and flow as its sector moves in and out of favor. But it should fare better than its peers over time, thanks to its strategy and low expenses.
Westport Select Cap
Although it just celebrated its 10th anniversary at the end of 2007, this fund is a relative unknown. In part, that's because it was closed for more than half of its life, but as of Jan. 1, 2008, new investors are welcome. Its relative anonymity also owes to its go-anywhere style: Rather than trying to fit into a box, its managers look for companies with sound business models, growing business values and cheap price tags. They also hold on for the long term, as the fund's very low turnover rate indicates. Comanager Ed Nicklin built up a great record at Evergreen using the same strategy before starting up Westport. The fund is truly actively managed, so it will likely underperform from time to time. The managers' emphasis on safety and other strengths make it hard to bet against it, though.
Paul Herbert is a senior analyst with Morningstar.