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Fund Spy
Closed funds worth waiting for
These offerings make appealing watch-list candidates. The nice part about buying a fund when it reopens is that you are usually buying it when its style is out of favor. It may be set for a rebound.
By Russel Kinnel
Many stock investors keep watch lists of stocks they would buy if their price dipped below a certain threshold. That's not an issue with funds, but there are still some reasons to consider creating a watch list. If you're still building your portfolio, it's a good idea to keep a list of additional diversifiers you might add as you round out your lineup. For example, you might have your core positions established but haven't yet squirreled away enough money to add a small-cap fund or a high-yield fund.
A second type of watch list to keep is one of good closed funds that you might buy if they reopened. The nice part about buying a fund when it reopens is that you are usually buying it when its style is out of favor, and it may be set for a rebound.
Sometimes, though, negative news about the fund may cause you to take a pass. For example, Janus Overseas (JAOSX) was on my closed-fund watch list last year, but I didn't leap at the chance when it reopened because lead manager Helen Young Hayes announced she will retire this year.
So here, then, are some of the more appealing closed (or otherwise inaccessible) funds around.
Oakmark Select (OAKLX)
I wouldn't expect this fund to reopen soon. It closed to new investors when assets were at $3.5 billion, and now they're up to $5 billion. Nonetheless, it is a great offering. Lead manager Bill Nygren has amassed an awesome record by buying businesses that are trading at a sizable discount to his estimates. He buys with conviction, too, as the fund has only 20 stocks, and top holding Washington Mutual (WM, news, msgs) makes up 18% of assets. We named Nygren Domestic-Stock Fund Manager of the Year for 2001. The good news is that Nygren's more diversified Oakmark Fund (OAKMX) is still open.
Calamos Convertible A (CCVIX)
Calamos has built a reputation as a convertible specialist through its great record at this fund and in its separate accounts. Managers John and Nick Calamos look for companies with strong balance sheets where the convertible behaves like a stock. Although "Calamos" isn't a household name, this offering's great record finally attracted a lot of assets this year, and the fund closed in April. One alternative that's still open is Calamos Growth & Income A (CVTRX), which invests in slightly lower-quality convertibles.
Artisan Mid Cap (ARTMX)
Manager Andrew Stephens has made this into one of the best mid-cap funds around. He blends stable growth stocks with more-aggressive fare to come up with a fairly wide-ranging portfolio. Although the portfolio winds up in mid-growth territory, there are a fair amount of cyclical stocks from traditional value industries such as energy. This fund's five-year returns of 14.6% annualized are in the top percentile for the mid-growth category. The fund closed to new investors when assets reached $2.2 billion, and now they've grown to $2.7 billion.
American Century Small Cap Value Inv (ASVIX)
This fund has nearly doubled the returns posted by the average small-value fund since it was launched in 1998. Co-managers Benjamin Z. Giele and Kevin Laub follow a disciplined value approach that emphasizes stocks that are trading at cheap prices based on a matrix of value measures such as P/E, price/book, price/cash flow and dividends. They maintain that value discipline on the sell side by unloading stocks quickly when their valuations near the small-cap market averages. This fund's asset base is fairly close to the level at which it closed, so it's quite possible it could reopen in the next year or two.
Bridgeway Ultra-Small Company (BRUSX)
Manager John Montgomery kept this fund focused on microcaps by closing to new investors at a very small asset base. Today the fund has just $78 million. This offering's current shareholders have to feel fortunate. The fund lands in the top percentile for its category over the trailing one-, three- and five-year periods.
Bogle Small Cap Growth Inv (BOGLX)
This quantitatively-run fund is about $60 million above the level at which it closed, so I wouldn't expect it to open really soon. If it does, though, you should take a look. Manager John Bogle Jr. takes an innovative approach to quantitative investing. Long a momentum proponent, Bogle decided that strategy had run its course and it was time to focus on quantitative ways to measure earnings quality instead. So far he's been ahead of the curve.
Wasatch Core Growth (WGROX)
What would a closed-funds watch list be without an entry from Wasatch? The Wasatch crew is among the best small-cap investment shops around. They do great fundamental research and have the records to prove it. In this fund's case, management looks for steady growers trading at reasonable valuations.
Vanguard Capital Opportunity (VHCOX) and Vanguard Health Care (VGHCX)
These funds aren't actually closed, but they're out of reach to small investors because Vanguard raised their minimum investment requirements to $25,000. This was Vanguard's way of slowing down inflows without actually shutting off the spigot entirely. Still, if flows slow or reverse, I could imagine Vanguard taking the minimums back down to $3,000.
If they do, get ready with your checkbook. Both funds have some of the best managers around, and they come at dirt-cheap prices. The Cap Opp team follows a contrarian growth strategy that's unlike any other and has produced awesome returns. At Vanguard Health Care, Ed Owens has proven to be the best sector fund manager working today.
Sequoia (SEQUX)
Great fund, but I'm not sure it will reopen in my lifetime. Maybe the best alternative is simply buying shares of top holding Berkshire Hathaway (BRK.B, news, msgs) directly.
(c) Copyright 2003. Morningstar, Inc. All rights reserved.
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