last year i was interviewed by the wall st journal as to what i thought about the closing of fidelity's contra fund and how i felt about what to do when funds get so big they close.
guess i was right as contra failed to beat the s&p by almost 50% for the year.
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Hot closing funds often cool off a bit
By Jennifer Levitz
The Wall Street Journal
When Matt Jakowsky heard that Fidelity Investments will be closing Contrafund to new investors April 28, he thought he'd better get in before the doors shut. The $65.2 billion mutual fund has had a 22 percent annual return over the past three years, trouncing broad stock-market indexes.
But after he did some research, he decided to pass. "I thought, you know, this is just silly. Contra's way too big," says Jakowsky, a 53-year-old electrical-supplies salesman from Queens, N.Y., who describes himself as an active investor.
Several analysts say he may have taken the right approach.
A closure is often a tip-off that the fund has already reached an unwieldy size, and that the manager is having difficulty taking positions in attractive stocks that are large enough to improve performance, says Russel Kinnel, director of mutual-fund research at the Chicago fund-tracking firm Morningstar.
And many funds can continue to grow after a closure. Contrafund, Fidelity's largest portfolio, will accept new investments via retirement plans, such as 401(k)s, that already have the fund among their menu of investment choices.
Contrafund, managed by Will Danoff since 1990, is a large-cap fund that's known for getting ahead of trends. It emphasizes rapidly growing companies such as those in Internet, wireless communications, health care and emerging markets.
Investors looking for a similar fund will want to find a manager who's flexible, says Don Phillips, managing director of Morningstar. He recommends funds managed by William H. Miller III at Legg Mason, such as the Legg Mason Opportunity fund. Dan Lefkovitz, Morningstar's Fidelity analyst, suggests USAA Aggressive Growth fund, ABN Amro-Montag & Caldwell Growth fund and T. Rowe Price Group Inc.'s New America Growth.
In a study a few years ago looking at 38 funds that closed, Morningstar found that the closers, on average, beat 80 percent of their peers in the three years before closing. Afterward, they fell behind more than half of their peers. Total return slipped to 15.4 percent a year from 19.6 percent.
More than 30 funds have closed to new investors so far this year, largely a reflection of the popularity of funds that invest in small companies, which have enjoyed a run on the stock market.