Fund Junkies' Dilemma: Which Reopened Fund Do I Buy?
We weigh the relative merits of some of our favorite recently reopened funds.
So many good reopened funds, so little room in the portfolio. The equity markets' bearish turn since last October has caused a lot of unwanted anxiety for investors. It also has created some happy conundrums for fund investors, though. A number of terrific, but heretofore closed, funds have reopened to replenish assets depleted by outflows and to take advantage of opportunities created by the downturn. Do you jump at what could be a fleeting chance to hire a terrific manager or management team? How do you choose among all the great managers who have started taking money from new investors again?
For some of the more than 30 funds that have unlatched their gates in 2008 the answer to the first question is easy. The list of funds that have or plan to reopen their doors reads like a mutual fund hall of fame. It includes Dodge & Cox Stock (DODGX) and Dodge & Cox Balanced (DODBX), Longleaf Partners (LLPFX), and, most recently, Sequoia (SEQUX), which was last open during the Reagan administration and will reopen May 1. We have greeted these reopenings with enthusiastic buy recommendations because the funds each have seasoned managers; consistent, time-tested strategies; solid, investor-focused cultures; and topnotch long-term records.
You Can't Own Them All
The answer to the second question is tougher. It depends on your own goals, risk tolerance, and predilections as an investor, as well as on what you already own. And the sad truth for fund junkies is that as much as you may admire these funds, it would be unwise to own them all. Keep in mind that you may already have a perfectly sound, diversified portfolio that would be thrown off kilter if you chased one of the reopened funds. As Vanguard founder John C. Bogle has often said, it's foolish to abandon a good plan for the pursuit of a perfect plan. It's also possible to have too much of a good thing. Owning too many funds (even great funds) can introduce unintended sector and stock bets to your portfolio because their holdings may overlap. Or it could render your portfolio into nothing more than a more expensive version of a market-tracking index fund.
Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.