7 Good Funds That Have Just Reopened

Every cloud has a silver lining.

For actively managed funds, that cloud has been outflows: Actively managed funds endured more than $300 billion in outflows last year, according to Morningstar's estimates. Specifically, U.S. active equity funds saw $174 billion walk out the door; active international stock funds, $38 billion.

For investors, the silver lining is that a smattering of closed domestic- and foreign-stock focused Morningstar Medalists have reopened during the past couple of months. In many cases, these funds suffered outflows after a period of underperformance. Yet we remain positive on their prospects and their managers.

Artisan International Investor

ARTIX

Morningstar Fund Analyst Rating: Bronze

Performance: Positive

Price: Negative

Process: Positive

People: Positive

Parent: Positive

Artisan International reopened on Feb. 1 after being closed since 2016. The fund's management team seeks quality firms (those with competitive advantages, significant free cash flow potential, and shareholder-oriented management) with sustainable growth prospects trading at reasonable prices. Each company fits into one of six global growth themes, including technology, environment, and financial services, among others. The fund's near-11% loss in 2018 bested 81% of its peers in the foreign large growth category; 15- and 10-year trailing returns hover near the top third of its group.

"The strategy has experienced about $8.6 billion in outflows over the past three years but retains its Morningstar Analyst Rating of Bronze," says senior analyst Kevin McDevitt.

Artisan Mid Cap Investor

ARTMX

Morningstar Fund Analyst Rating: Silver

Performance: Positive

Price: Neutral

Process: Positive

People: Positive

Parent: Positive

Closed to new investors since 2002, Artisan Mid Cap reopened on Feb. 1. This mid-cap growth fund focuses on sturdy growers with healthy balance sheets, typically investing in more companies with narrow or wide Morningstar Economic Moat Ratings than its index. Despite fine 15- and 10-year trailing returns that hug the top quartile of its category, five-year results land behind 82% of its category peers. Assets peaked over $10 billion in 2014, explains senior analyst Christopher Franz, and the fund has been in redemptions ever since. It finished 2018 with $4.3 billion in assets.

"Still, the fund's management team is stable and deep, led by comanager Jim Hamel," says Franz. "It has demonstrated an ability to bounce back from missteps, highlighted by better performance than mid-growth Morningstar Category peers during 2018’s sell-off. The fund remains a compelling mid-growth option."

Columbia Small Cap Value II

NSVAX

Morningstar Fund Analyst Rating: Bronze

Performance: Positive

Price: Neutral

Process: Positive

People: Positive

Parent: Neutral

After being closed to new investors for more than a decade, Columbia Small Cap Value II reopened in January. The management team blends quantitative and fundamental analysis by screening names in the Russell 2000 Value index on valuation and relative strength metrics, and then conducting fundamental research on the 150 or so names that screen attractively. The fund's 10- and five-year returns land inside its peer group's top half. In 2018, returns landed near the bottom quartile of the small value category.

As of September 2018, the strategy had approximately $2.2 billion in AUM but has been in outflows in recent years, losing over $700 million over the trailing five-year period," notes analyst Linda Abu Mushrefova. "Its 17.5% loss in 2018, 4.6 percentage points worse than its Russell 2000 Value Index benchmark, further eroded its asset base. Capacity bears watching if the flow picture reverses, but the team's willingness to close the strategy in the past gives us confidence."

First Eagle Overseas

SGOVX

Morningstar Fund Analyst Rating: Bronze

Performance: Positive

Price: Neutral

Process: Positive

People: Positive

Parent: Neutral

Closed for nearly five years, First Eagle Overseas reopened in January. Unlike its peers in the foreign large-blend category, this fund's primary mandate is capital preservation. To that end, the fund invests largely in foreign equities, focusing on securities trading far enough below management's estimate of intrinsic value to provide a comfortable margin of safety. Management maintains a position in foreign corporate bonds, cash, and gold bullion, too. Given this conservative--and unusual--approach, yearly returns usually land near the top or bottom of the category. The fund's 10% loss in 2018 landed just outside the top decile of the foreign large blend category.

"The reopening comes after nearly $3 billion in fund outflows for the trailing year through November 2018," says director Katie Reichart. "Managers Matt McLennan and Kimball Brooker say they've seen more opportunities amid the 2018 market sell-off, a different environment from when the fund closed to new investors in 2014--a period when the strategy had seen steady inflows."

Franklin Small Cap Growth

FSGRX

Morningstar Fund Analyst Rating: Bronze

Performance: Neutral

Price: Positive

Process: Positive

People: Positive

Parent: Neutral

With most share classes closed to new investors since early 2015, Franklin Small Cap Growth reopened to new investors in late January. Longtime lead manager Michael McCarthy seeks smaller companies with strong growth prospects led by managers who focus on their balance sheets. He’ll take positions in private companies and keeps his stake in public companies diversified, spanning 100 to 120 stocks. The fund tends to outperform in rallies and has had mixed success in down markets.

"The fund's availability has no impact on its Morningstar Analyst Rating of Bronze, but it does present an opportunity to buy a fairly aggressive and cheap small-cap growth manager," argues analyst Tom Nations. "New investors should keep in mind the manager's willingness to invest up to 5% of the fund's assets in private companies. He also tends to stick with his picks longer than most Morningstar Category peers. At year-end 2018, the fund managed over $2.2 billion in assets. The manager has previously stated a preference to close the fund once assets reach $3.5 billion."

Invesco Developing Markets

GTDYX

Morningstar Fund Analyst Rating: Silver

Performance: Positive

Price: Positive

Process: Positive

People: Positive

Parent: Neutral

Invesco Developing Markets closed to new investors in June 2017, but will reopen on Feb. 28. The fund takes a disciplined and patient approach, looking for earnings growth that's sustainable and not overly leveraged--and that can be purchased at a decent price. The managers are willing to underweight big markets if they feel their options are limited. The fund therefore often has country weightings that are misaligned with its index and peers, which can lead to a bumpy ride. The fund's painful 18%-plus loss in 2018 significantly lagged its category peers and index by 2 and nearly 4 percentage points, respectively.

"The fund had about $3.1 billion in assets when it closed; as of year-end 2018, that asset base was down to about $2 billion," explains senior analyst Gregg Wolper. "The fund was hit by nearly $900 million in net outflows in 2018 as it suffered an 18.7% calendar-year loss. It has rebounded in early 2019, posting a 13.0% gain in January that landed in the top 2% of the diversified emerging-markets Morningstar Category."

Oakmark International

OAKIX

Morningstar Fund Analyst Rating: Gold

Performance: Positive

Price: Neutral

Process: Positive

People: Positive

Parent: Neutral

Oakmark International has a history of closing and reopening in an effort to maintain its investment style. Most recently, it closed in January 2018 after gathering nearly $10 billion in inflows in 2017. It reopened in December that year--a dismal year where it shed more than 23% and landed near the bottom of the foreign large-blend category. The fund's 15- and 10-year trailing returns remain stellar, though. Credit goes to lead manager David Herro's disciplined approach, which targets stocks trading at deep discounts to their intrinsic values. Herro and his team like out-of-favor companies that are still growing, generating cash flow, and reinvesting that cash flow in profitable ways.

Herro, lead manager of the fund since its 1992 inception, says the fund is reopening to take advantage of opportunities in tumultuous international markets, reports director Dan Culloton.

"Reopening when non-U.S. stocks are down is consistent with Herro's contrarian value strategy. That cross-grain approach gives the fund more flexibility than other funds that are more apt to follow the crowd. The strategy, however, is still the largest actively managed fund in the foreign large-blend category and among the biggest non-U.S. equity funds overall. Capacity remains a concern, but at least the fund is reopening when trends are against it," Culloton says.