When Mutual Funds Reopen for Business

Barbara Kiviat has a piece today on how ordinary schlubs like you and me now have a Rare Opportunity to buy mutual funds which until recently were closed to new investors:

It's been years since anyone without an existing account could put money into some of the best-known names in the business, like Sequoia Fund, Dodge & Cox Stock, Longleaf Partners, Fidelity Magellan, Artisan Mid Cap Value, Oakmark Equityand Income, Vanguard International Explorer and Third Avenue Small-Cap Value.

Kiviat makes some good points about checking on low fees and being wary of funds invested in illquid instruments which might yet see further redemptions. But she never asks the big question: is there any reason to suppose that these funds, which did very well in the big bull market, are well positioned to outperform in a bear market?

Even in the best of times, past performance is not much of a guide to future returns. But after a major inflection point like we've just seen, it's clear that the strategies which served investors well during the Great Moderation are not going to be the same ones which make lots of money in years to come.

Is it possible that "some of the best-known names in the business" will be able to navigate the transition? Yes. But I wouldn't have enough confidence in any of those names that I'd actually place serious money on it.

It's hard for retail investors to interview fund managers and get a good feel for how they're going to tackle the years ahead. But without any public indication of how their strategy has changed to reflect changed circumstances, I'd be very wary of throwing money at the heroes of yesteryear.

Comments

[Urbane Gorilla!]

I agree. Mutual Funds are not the means to wealth in the future. If we are looking at a declining economy and at best a sideways and volatile market, then if you wish to use sector or index type investments, it would be much wiser to buy ETFs. Not only do they as a rule charge less, but they are tradeable during market hours. Nothing like waiting till closing time to find that your fund has tanked 10% that day and you could not place a stop on it.

The advise of the Bogles and Templetons of this world to buy and hold has passed it's prime and the proponents of this philosophy are lining their pockets at the investor's expense.

jegan

2008 Dec 02 01:54 PM

[jimmy46]

For the most part I agree with all you said,

However,

If a person makes the minimum investment in one of these funds,
then later they can usually ADD to it.

You need to get your foot in the door while you have the chance.

When funds "close" they close to NEW investors,
they usually accept more money from the old investors.

2008 Dec 02 08:19 PM