3_6 Fund Closing - To Close or Not to Close a Fund? WSJ,...

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To Close or Not to Close a Fund? WSJ, 9/9/05 Turning Away Potential Investors Can Help Performance, but Letting Everyone In Could Boost Profits 'Go away" isn't what you want to hear from a company with which you'd like to do business. But in the case of mutual-fund managers who are turning away potential investors in their funds, that message may be a signal to consider a firm's other offerings or watch for future reopenings. Closing funds to prospective buyers can be a good thing for existing investors, fund researchers and financial advisers say, because performance can slip when funds grow so large that managers have trouble executing their strategies. Fund-management companies, however, have a financial incentive to keep the doors open even as portfolios swell: Their fees are figured as a percentage of those growing assets. "Closing funds is one of the better indicators that a fund company is putting fund investors' long-term interests ahead of its own short-term profit goals," says Russel Kinnel, director of fund research at Morningstar Inc. in Chicago. Turning away new investors is particularly critical with small-stock funds -- since the limited supply of shares in small companies limits the dollars a manager can invest in a single stock. Some managers who invest in the tiniest stocks close their portfolios to new investors at $50 million or $100 million. When funds choose not to close, the managers usually end up buying a larger number of stocks or buying more and more larger stocks, thus changing the fund's profile. Fund managers say there are no hard and fast rules about when to close; that depends on
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This note was uploaded on 10/18/2009 for the course UGBA 133 taught by Professor Distad during the Spring '08 term at University of California, Berkeley.

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3_6 Fund Closing - To Close or Not to Close a Fund? WSJ,...

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