Contrarian Alert: 5 Fine Reopened Funds

Um, thanks but no thanks?

That may well have been many investors' reaction to last Friday's news that Sequoia Fund SEQUX was reopening to new investors.

The fund’s performance certainly won’t turn any heads: It has lost a fourth of its value over the past year and lands in the bottom 1% of the large-growth category over that same time frame. An enormous stake in

that the fund had taken the unorthodox step of paying off some departing shareholders “in kind”--that is, giving them chunks of the fund’s stock positions rather than cash, to help reduce performance disruption and tax costs for the shareholders who have stayed on board.

Given that backdrop, drawing shareholders into Sequoia at this juncture could be a tough sell. Yet Morningstar analysts still rank the fund among their Medalists. No less an investment luminary than Warren Buffett, speaking at

But even for investors who aren't willing to take the plunge into Sequoia at this point, a broader lesson stands: It's frequently better to buy a fund upon its reopening (often when performance is in a trough) than it is to rush the doors when it's about to close. Not only can weak performance signal that a fund's basket of stocks could be inexpensive (though in Sequoia's case, that's debatable, as Morningstar senior analyst McDevitt noted in his article about the fund's reopening), but the managers of smaller funds may be more readily able to take meaningful positions in companies they like. A closure, by contrast, is usually an indication that management is having trouble finding positions to sop up incoming cash.

With that in mind, let’s take a closer look at some of the Medalist funds that have recently reopened to new investors. Notably, several of them employ strategies where being nimble confers an advantage.

Category: Small Growth

Analyst Rating: Bronze

Although it has looked better recently, this fund struggled from 2012 through 2015, as bets on basic materials and energy stocks worked against it. Lead manager Chuck Royce trimmed some of those positions upon the departure of comanager Whitney George in late 2014, but the fund has still gotten plenty of mileage out of a recovery in such names in 2016’s early innings; a big emphasis on thriving industrial stocks has also been a boon. Analyst Alex Bryan gives plaudits to the fund for its sensible focus on high-conviction names with durable pricing power, as well as its experienced management.

Category: Small Value

Analyst Rating: Gold

Like Royce Premier, this fund’s recent performance leaves something to be desired: Though its very long-term return rankings are superb, its three- and five-year numbers land in the small-value category’s bottom 25%. Yet analyst Alex Bryan believes the fund merits investors’ confidence, giving the fund a “Positive” rating on every pillar except its expenses. Bryan notes that lead manager Charlie Dreifus’ process is inherently conservative, focusing on companies with reasonable valuations, strong balance sheets, high returns on capital, and conservative accounting practices. Those exacting criteria have helped the fund hold up well in previous market swoons, such as in the early 2000s and again during the global financial crisis.

Category: World Stock

Analyst Rating: Silver

While prospective investors are still on the outside looking in at this team’s other charge, the still-closed

Category: Mid Blend

Analyst Rating: Silver

Senior analyst David Kathman noted in his most recent analyst report that the fund lost a big share of its assets in the 12-month period through early 2016, prompting its reopening. Big outflows can be cause for alarm, forcing fund managers to shed positions they might rather hang onto. But Kathman asserts that this fund’s management appears to have handled them well, and also believes that the fund’s smaller size could make it easier to manage. Lead manager Thyra Zerhusen uses a Buffett-influenced approach, focusing on well-managed businesses with reasonable valuations; when she and the team find companies that meet their criteria, they aren’t shy about building meaningful positions in them. (With between 40 and 50 holdings, the fund is pretty concentrated for a mid-cap fund.) A no-load share class is available on brokerage platforms such as Schwab’s.

Category: Large Blend

Analyst Rating: Silver

It’s less common for large-cap funds like this one to close, but close it did in late 2012, after it had reached a fairly modest $3.5 billion in assets. The motivation was to help lead manager Tim Hartch and his team maintain a concentrated portfolio composed of high-quality firms trading at reasonable valuations. But the fund reopened in early 2016 amid heavy redemptions, and

for investors in search of core equity exposure. Management was far from effusive in

, but the fund’s sober strategy has led to a very strong long-term record and especially good performance in down markets.