Meet the 10 Most Redeemed Funds: Should You Stay or Go?
Why investors are fleeing these funds in droves.
As you'd expect from someone who writes a column called The Contrarian, I like to go against the grain and invest where others are fleeing. That's why I find a list of the funds with the greatest redemptions intriguing. The catch, though, is that some funds are getting redeemed with good reason, so you have to pick your spots. In addition, redemptions can cause problems at a fund and make a bad situation worse by driving up trading costs and forcing managers to sell when they'd rather be buying.
Here's a look at the funds that have had the most dollars pulled out so far this year. The figures are through Oct. 31, 2007.
Vanguard 500 Index (VFINX): Redemptions $14.4 billion, 12% of assets
This fund is as good as it's ever been, so I wouldn't join the pack fleeing the door. It's still a well-diversified low-cost index fund that closely tracks the S&P 500. Investors are bailing for two reasons. First, as a blue-chip-dominated index, this fund's returns lagged a lot of fund's from 2000-06 as small caps dominated. Second, Vanguard has recommended Vanguard Total Stock Market Index (VTSMX) over Vanguard 500 because the former has more holdings and doesn't often suffer from a big component jumping into the index.
Russel Kinnel has a position in the following securities mentioned above: AWSHX. Find out about Morningstar’s editorial policies.