Price closing Horizons fund Too much money coming in too fast, executives say

Investment brokers

June 07, 1996|By Bill Atkinson | Bill Atkinson,SUN STAFF

Awash in money, T. Rowe Price Associates Inc. said yesterday that it is indefinitely closing its hugely popular New Horizons Fund.

Executives with the Baltimore-based mutual fund company said the rapid pace of money flowing into New Horizons could hamper its ability to invest in quality small companies.

"In the last 18 months, the fund's assets have grown dramatically due to strong investment performance and substantial cash flows," said James S. Riepe, chairman of T. Rowe Price Investment Services. But "continued large inflows of cash could eventually impair our ability to find an adequate supply of reasonably priced emerging growth stocks."

T. Rowe Price will close the $4.1 billion-asset fund to new investors June 18, the company said. The fund will continue to accept investments from existing shareholders, and new accounts from participants in 401(k) plans and from investors rolling over distributions from qualified retirement plans into an IRA.

Formed more than 30 years ago, New Horizons invests in companies that have market capitalization values of less than $1 billion. This year, it is growing at a blistering pace.

It had more than $700 million in net cash inflows during the first five months of 1996 -- averaging more than $10 million a day in May, Price said. Assets have shot up 41 percent since the beginning of the year to about $4.1 billion.

New Horizons is the third-largest of Price's 68 mutual funds. Its International Stock Fund has assets of $8.1 billion; its Equity Income Fund has $6.3 billion.

New Horizons' average annual total return for the five years ended May 31 was 23.1 percent; in 1995 it was 55.4 percent. For the first five months of 1996, New Horizons returned 16.9 percent.

It is ranked No. 14 of 87 "small company growth" stock funds tracked by Lipper Analytical Services Inc. over the past five years.

John H. Laporte, New Horizons' manager since 1987, was named fund manager of the year in 1995 by Morningstar Mutual Funds, an industry newsletter.

Laporte said that while small-company stock prices have risen significantly in recent months, valuations were not a factor in closing the fund.

"I don't think the company would have done this unless it was in the best interest of people buying the shares," said Carol Festa, an analyst with Smith Barney Inc. in New York. "They have been getting in so much [cash] that it becomes harder and harder to invest it."

In March, T. Rowe Price closed Small Cap Value Fund to investors because of a surge in money from new shareholders, and the manager wasn't comfortable running a fund of more than $1 billion.

Riepe said that the $82 billion-asset T. Rowe Price does not plan to close two of its other funds that invest in the small and medium-sized business, the OTC Fund and its Mid-Cap Growth Fund.

New Horizons Fund, which opened to investors in June 1960, has been closed to new investors before, from October 1967 to October 1968, and again from March 1972 to September 1974.

Pub Date: 6/07/96

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