Successful mutual funds close doors to new investors

March 08, 1992|By Thomas Watterson | Thomas Watterson,Boston Globe

Like popular motels at the height of the tourist season, some of the more-fashionable mutual funds are hanging out "No Vacancy" signs.

With more money flowing in than their portfolio managers feel they can invest wisely, a growing number of mutual funds are closing their doors to new investors. This has left investors who want the benefit of those managers' expertise to look for a similar fund from the same company, or find a back-door way of getting into a fund that's closed.

One of the latest closing announcements came Jan. 30, when the trustees of the Montgomery Small Cap fund in San Francisco said it would close when assets hit $100 million. Now, though, the fund has almost $135 million, and has decided to close when another $30 million comes in. "The way it's pulling in money, that will be very soon," said Gerald Perritt, editor of The Mutual Fund Letter in Chicago.

In the past few months, several other funds have closed, including Janus Venture, Nicholas Limited Edition, Babson Enterprise, Oppenheimer Global Biotech and the American Funds Smallcap World.

Fund closings are not new; they've just been happening more often lately, particularly with some of the increasingly popular funds that invest in smaller companies. These funds have simply pulled in much more money than their portfolio managers want or need. A fund manager who suddenly has millions of new dollars to invest either has to buy more stocks in companies she or he already owns, or has to look for new companies to buy, which may not be as good as those the fund owned before. Or, just buying more shares in a firm the fund owns can drive up the price, making it more expensive when the next flood of money comes in.

With some funds, a decision to close "is a matter of style," said Kurt Brouwer, a partner with Brouwer & Janachowski, a San Francisco money management firm. Some fund firms that have developed a particular investment style feel they can follow that style better if they don't have a lot of new money coming in, he said.

Or, Mr. Perritt said, a manager might feel comfortable owning and following 50 stocks, but not 100, which a lot of new money could force him to own.

In some cases, investors who wish they had gotten into a fund before it closed can still benefit from the investment company's strengths or a hot manager's special touch, through a similar fund from the same company. When Montgomery announced the imminent closing of its Small Cap fund, for example, it said a new one, the Emerging Markets fund, would open around March 1. While the Small Cap fund concentrates on smaller companies in the United States, Emerging Markets will extend the idea by investing in smaller international markets, such as Brazil, Singapore, South Korea and Pakistan.

Another fund, CGM Capital Development in Boston, managed by G. Kenneth Heebner, has been closed for a few years, but investors who want to participate in Mr. Heebner's success can still get into his CGM Mutual, a no-load balanced fund, or New England Growth, which has a 6 1/2 percent load.

Dan Weiner, editor of the Vanguard Adviser, an independent newsletter in Brooklyn, N.Y., that follows the Vanguard Group, has another suggestion for people frustrated by a "closed" notice. The Vanguard Windsor fund, run by John Neff, another successful manager, has been closed for some time.

But new investors may be able to get into Windsor and other closed funds, Mr. Weiner said. All they have to do is find a current investor who is willing to sell them a single fund share, get a transfer form from the fund company, and a signature guarantee for the new owner from an officer of a bank or brokerage house.

The new shareholder then adds enough money to reach the company's minimum to maintain an active account, usually $1,000 to $3,000. After that, more money can be added at any time.

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