The Best Newly Reopened Funds of 2009 and 2010
These funds are back open for business and merit investor attention.
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.
What's Open for Business?
Click here to view a table of mutual funds that had reopened in 2009 and 2010. Not all of these are standouts, but the following merit further attention.
Neuberger Berman Genesis (NBGNX)
This fund was closed for seven years before reopening in January 2009. The four-person management team focuses on small- and mid-cap companies that have long-term competitive advantages, generate lots of cash, and can grow independent of the economic climate. Even when the market has favored speculative, lower-quality names, as was the case in 2008 and 2009, the managers will stick to their picks for the long run, as evidenced by the fund's microscopic turnover. The fund therefore rewards those investors who share their patient approach. It's one of the most even-keeled funds around.
Columbia International Value
This foreign large-value fund is managed by the experienced large-cap investment committee from Brandes Investment Partners. Management focuses on financially healthy companies that are selling below their estimates of fair value, favors companies with healthy balance sheets, and will readily consider unloved growth and emerging-markets stocks. The fund's recent performance was relatively lackluster because of sluggish performance from management's telecom picks and Japanese holdings, but this is not surprising given the fund's unique and patient investment strategy. When the team finds substantial value, it's not shy about loading up on individual markets and sectors, and they'll hang on for years until that value is unlocked. Still, this fund has boasted solid long-term performance in different market climates for the past 13 years. For the patient investor with a long time horizon, this fund is a compelling choice.
Wells Fargo Advantage Small Cap Value
This fund latched its doors for six years before it reopened in January 2010. Unfortunately, the fund's performance was unimpressive last year, lagging 90% of its peers. That performance hiccup was the result of an ill-timed bet on energy rather than any fundamental problems at the fund. In fact, our analysts have encouraged investors to remain in the fund even during its closure. Long-tenured manager Charles Rinaldi has not deviated from his strategy of buying modestly valued companies with less than a $2 billion market cap and a catalyst for growth. He also makes bold (and often contrarian) sector bets that deviate from its peers and benchmark, but patient investors have been rewarded.
Vanguard Convertible Securities
This fund has been a longtime analyst favorite. It closed in mid-2009 and reopened in May 2010 as assets flowed out during the throes of the European debt crisis. The reopening has slowed the bleeding of assets, yet since then, the fund has gone through some changes. First, the fund has expanded its strategy to include convertible securities from overseas issuers. Second, Jean-Paul Nedelec and Abe Ofer have joined longtime manager Larry Keele as managers on this fund. The pair will manage the international sleeve of the portfolio, while Keele will continue to run the domestic sleeve. Moreover, like Keele, Nedelec and Ofer will invest only in convertibles--primarily convertible bonds--with attractive prices and sound creditworthiness. The fund boasts a superb long-term record, beating its average peer in almost 90% of the rolling 36-month periods since Keele's arrival in 1996.
Note: This article was revised since original publication. Some updates were included about Vanguard Convertible Securities based on recent changes at that fund.
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