Hi, I noticed that in my 401k I have 6 funds picked, but 3 of them are
closed to new investors. They are Baron Growth, Dodge Cox, and Fidelity
Magellan.
Why would a fund close itself off to new investors? Is this a bad thing
or a good thing? Or neither?
thanks, Sandy
Could be either. The smart ones want to stay small so they can be nimble
with their investments... on the other end of the stick are the bloated
funds that have so much cash they don't know where to put it...... I think
Magellan used to be in the bloated category.
Happy Guy, "Laissez les bons temps roulez"
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"sandy" <> wrote in message
news:pAntf.7091$
> Hi, I noticed that in my 401k I have 6 funds picked, but 3 of them are
> closed to new investors. They are Baron Growth, Dodge Cox, and Fidelity
> Magellan.
>
> Why would a fund close itself off to new investors? Is this a bad thing
> or a good thing? Or neither?
>
> thanks, Sandy
"sandy" <> wrote
> Hi, I noticed that in my 401k I have 6 funds picked, but 3
of them are
> closed to new investors. They are Baron Growth, Dodge
Cox, and Fidelity
> Magellan.
>
> Why would a fund close itself off to new investors?
One reason for closing a fund is to maintain flexibility in
the fund managers' stock choices. More flexibility in theory
should lead to better performance. Elaboration:
When a fund's capitalization becomes too large, buying a
smaller cap stock that would otherwise be attractive becomes
difficult without moving the whole market for that
particular, smaller cap stock. Hence, if a fund becomes too
large, with more and more investors, it becomes top heavy
with larger cap stocks, and begins to track very closely
ordinary, predominantly large cap indices like the S&P 500.
Magellan's (for one) uniqueness couldn't be explained
anymore.
> Is this a bad thing
> or a good thing? Or neither?
It's bad in the sense that it is a sign the fund has reached
a theshold of capitalization that will limit its managers'
stock choices--they just have too much money and not enough
'well-picked, good' stocks that can soak up all that cash.
Closing the fund is good in the sense that this action is
some kind of attempt to regain flexibility in stock choices.
Whether closing a fund actually does result in better fund
performance probably depends on the fund. One can graph
FMAGX vs. the S&P 500 at finance.yahoo.com for the last five
years, for one, and see that they differ hardly at all.
Generally speaking what will make a difference is that there
are many S&P 500 index funds that have an expense ratio much
lower than FMAGX--e.g. FSMKX.
Google for {"why do mutual funds close"} for more
discussion.