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Excellent Closed Funds for Your Watchlist

Warning: These funds are currently closed to new investors.

I recently wrote about reopened funds and their contrarian appeal. The idea is that you have good funds that you can trust to close when assets or flows threaten to overwhelm the strategy. Not every fund would do that.

Today, I'm taking the next step and sharing a few still-closed funds that you may want to add to your watchlist. I went looking for funds that at least have a shot at reopening. Here's what I screened on:

  • Must be a closed fund.
  • Must be a Morningstar Medalist.
  • Must have closed at least three years ago or more, as there's not much chance a fund that closed this year will be reopening soon.
  • Must be in outflows. Otherwise, why reopen? Of course, the outflows screen means I'm more likely than not to find a fund that has underperformed in recent years.

I found four good candidates.

Fidelity Small Cap Discovery FSCRX We give this fund a Morningstar Analyst Rating of Silver yet it has suffered outflows of a little more than a $1 billion over the past 12 months ended September. That's a meaningful number for a fund down to just $2.8 billion in assets. It's less than the asset level the fund had when it closed in 2013.

The fund has been in outflows because chuck Myers handed the reins to Derek Janssen at the end of 2017, and the fund lagged in Myers' last year as well as in Janssen's first. For what it's worth, it has rebounded nicely in 2019, but that's not why it's rated Silver. We like Janssen's record at former charge Fidelity Small Cap Value FCPVX and the strategy crafted by Myers and modified by Janssen. It's a value-driven strategy with emphasis on margin of safety and cash flow. It has plenty of appeal should it reopen.

Wasatch Small Cap Growth WAAEX This Gold-rated fund has only modest outflows of $198 million on an asset base of $1.7 billion, so I don't imagine they are under much pressure to reopen. We've been pleased by how J.B. Taylor has run the fund since taking over in 2016 when Jeff Cardon stepped down. Oddly enough, the outflows come despite huge outperformance in 2018 and 2019.

The strategy here emphasizes fast growing small-caps but usually avoids the wildest and most speculative names. To be sure, there's still plenty of risk here, but Taylor is a pretty savvy manager of those risks.

Diamond Hill Small-Mid Cap DHMAX This fund underperformed in 2017 but otherwise has been a strong performer under Chris Welch. It's earned a Gold rating. The fund has shed $162 million the past 12 months, leaving it with $2.34 billion in assets. That's about the same level it closed at in 2016, so I would assume it would take more outflows to prompt a reopening.

We've been impressed by Welch's ability to make good returns even though the firm's value strategy is decidedly out of favor. To do that, a manager has to find cheap but healthy companies and avoid value traps. That sounds easy, but it's quite hard. You can tap into Welch's abilities at the still-open Diamond Hill Small Cap DHSCX, which Welch took over in February 2019.

Seafarer Overseas Growth & Income SFGIX This Silver-rated fund is partially closed. It reopened its institutional shares, which have a $25,000 minimum investment. However, you have to either pay a transaction fee to buy through Fidelity or Schwab or you have to open an account with Seafarer directly.

This fund has also had some transitions, though lead manager Andrew Foster is still in charge. Foster has built a great record here and at Matthews funds prior to that. However, comanager InBok Song recently left the firm.

This emerging-markets fund has a sound strategy that tames the extremes of emerging markets. The emphasis is on sustainable growth with reliable income. You get a mix of value and growth here and relatively modest fees to boot. Outflows of $540 million the past 12 months have assets down to $1.5 billion. That's a little below its closing level in 2016.

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