The Best Newly Reopened Funds of 2009 and 2010
These funds are back open for business and merit investor attention.
It's no secret that recent market volatility has tested investors' staying power. While a strong recovery in 2009 helped reverse massive outflows in 2008, stocks still saw about $25 billion dollars in outflows for the year. And 2010 saw large asset outflows from stock funds despite strong returns from stocks for the year. Stock funds bled more than $68 billion in assets through the year's first 11 months. That trend has compelled some heretofore closed funds to reopen their doors for business.
Look Both Ways Before Crossing
Mutual funds will usually close their doors when a fund is attracting a lot of money (often the result of performance-chasing) that managers cannot invest because of a lack of opportunities. That's why rushing the doors of a soon-to-close fund is rarely a good idea.
But should investors bite the bait of a reopened mutual fund? Not always. The reopening of a closed mutual fund does not necessarily indicate that the manager is finding opportunities to buy; it could be that the fund needs to offset its outflows by growing or stabilizing its asset base without liquidating positions or dipping into cash reserves. As with any investment, investors considering a newly reopened fund need to do their due diligence while considering potential pitfalls. How has the fund performed before and after its closure? Has anything substantive happened behind the scenes at the fund, such as a management or ownership change or a strategy shift? Investors should also keep an eye on the fund's asset base. Although a fund may have experienced significant outflows, its asset size may still keep the managers from investing in the same style they once used.
Esther Pak does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.