Is It Time to Buy Vanguard's Recently Reopened Funds?
These four funds may be out of favor, but their fundamentals remain intact.
Vanguard reopened four funds last year that had been closed to new investors: Vanguard International Explorer (VINEX), Precious Metals and Mining (VGPMX), Health Care (VGHCX), and Explorer (VEXPX). Each of them is a Morningstar Analyst Pick. Is it a good time to buy them?
Morningstar has done studies showing that it's not such a good idea to buy funds right before they close to new investors (see Morningstar FundInvestor, October 2006), but purchasing funds after they reopen to new investors can be more fortuitous. That's because funds often close when their asset classes are peaking and they're being deluged with assets that can crimp their style and strategy. They often reopen, however, when their areas of the market are out-of-favor and they have been shedding assets. Ironically, a good fund's prospective returns are often better in the latter scenario, provided that all the fundamental attributes that made it a good fund in the first place remain intact.
All of the recently reopened equity funds have seen losses and outflows in the past year, so they qualify as out-of-favor. But are their fundamentals still sound? Well, each of the funds remains a Morningstar Analyst Pick. Nevertheless, they aren't automatic buys for every investor. You have to make sure that they fit your goals and risk profile first.
Dan Culloton has a position in the following securities mentioned above: VGHCX, VGPMX. Find out about Morningstar’s editorial policies.