Without hot, new stuff to sell, fund companies are relying on old standbys, bringing funds out of mothballs and reopening them to new investors in an effort to keep the cash flowing. Good long-term records attract the dough in down markets. This week and next, this column will examine both ends of the spectrum, funds that are reopening and those that are shutting down, and what investors should look for in each situation. On the surface, a fund that reopens to new investors always looks like a good deal. Funds close to new investors for several reasons, notably to control growth when they are hot or to avoid feeling forced to buy new stocks when the market lacks the kind of buying opportunities the manager normally pursues.
Some funds never reopen.
Among those that do, the motivation is usually the desire to pursue buying opportunities, ease cash-flow problems caused by downturns, or simply keep management's fees high. Last week, Vanguard moved to reopen two funds with superior long-term records, Primecap and Capital Opportunities. Both have posted annualized average returns of more than 20 percent over the last five years, and both have been closed to new investors for more than a year. That isn't likely to save the funds this year, when both are showing losses in the 8 percent range. In fact, a performance downturn is commonplace for almost any fund that reopens.