Course 409: Chasing Closing Funds
Is Closing Bad, Then?
In this course
1 Introduction
2 Performance May Take a Hit
3 ...and Taxes Can Make It Worse
4 Is Closing Bad, Then?
5 Wait. And Other Helpful Hints

Closing a fund can enable a manager to stick with the investment strategy that has brought him or her success in the past: Excessive assets may force a change in strategy, a problem we'll explore in greater detail later. Closing is still probably worthwhile for funds with a small number of managers and analysts, a strategy sensitive to asset size, such as high-turnover momentum investing, or a fund that focuses on a less liquid asset class, such as small caps or real estate investment trusts (REITs).

Moreover, a number of fund companies have developed what appear to be effective game plans for closing new funds even before they are rolled out. They make their own estimate of what asset size would be appropriate for the fund and sometimes even make a public pledge to close when assets hit a certain level. (Most of these funds closed before they built a three-year record and were thus excluded from our study of closed funds' performance.) Wasatch serves as a good example of this. Through the years, this small-cap boutique has paid strict attention to fund size to ward against asset bloat, and at various points in time, very few of the firm's offerings have been open to new investors. That vigilance appears to have paid off as Wasatch funds' stellar performance through the years owes at least partly to their manageable size.

Next: Wait. And Other Helpful Hints >>


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