Price reopens its New Horizons to new investors

Fund had been closed, but firm seeks to keep pace with withdrawals

May 03, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

T. Rowe Price Associates Inc. said yesterday that it has reopened its New Horizons Fund, which had been closed to new investors for nearly six years, in an effort to staunch an outflow of money.

Although New Horizons has grown to $4.8 billion in assets under management from $2.9 billion when it was closed in June 1996, withdrawals have outpaced new investment in three of the past five years and in this year's first quarter.

The fund has had $700 million in net outflows this year, said John H. Laporte, who has managed New Horizons since 1987. Most of the outflow is attributable to an institutional client that pulled the money out of the fund after changing its investment strategy. Some of the money remained at T. Rowe Price.

Last year, net outflows totaled about $300 million, Laporte said. The number of shareholders has fallen, too, by more than 35 percent from its peak in 1996.

"We are doing this to stabilize the cash-flow situation," Laporte said. "It is not healthy for existing shareholders to be in a fund that ... will be shrinking in terms of size and number of shareholders over time. If we had modest positive cash flows, that would be the ideal situation for existing shareholders."

New Horizons began in 1960 and is the second-oldest mutual fund offered by Baltimore-based T. Rowe Price. The fund invests in small, rapidly growing companies, which makes it volatile.

This year, the fund is down 4.46 percent as of Wednesday, compared with a negative 4 percent return among all small-cap growth funds, according to Lipper Inc., which tracks the performances of mutual funds.

Those returns are well below New Horizons' 55.44 percent return in 1995 and 32.52 percent in 1999.

The 1995 performance led to Laporte's being named fund manager of the year by Morningstar Inc., an investment research company that tracks mutual funds. It also attracted legions of investors to New Horizons, which had more than $700 million in net cash inflows during the first five months of 1996 before it was closed to new investors.

Despite its recent problems, New Horizons has done better than many similar funds over the long haul, according to Lipper, which tracks mutual fund performance.

New Horizons' annualized total return was 10.11 percent over the five years that ended Tuesday and 14.06 percent over 10 years, according to Lipper.

Laporte is hopeful that New Horizons will pick up in performance. Small-cap funds have been among the better performers recently.

Laporte said small-company stocks tend to do better as the economy and the stock market recover after hitting bottom.

"We think we have further to run in this small-cap cycle," Laporte said. "We think that it is an opportune time for investors to be looking at the growth side of the market. We think that growth will have its day in the sun again."

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