(PUB) Morningstar FundInvestor

November 2013

Morningstar FundInvestor

3

You can use them to compare with your funds. If it’s a fund with low turnover, you could give it a little more slack; if it has high turnover, you might want a fund with assets below that median closing level. I find it most useful for funds where one or all man- agers operate together as opposed to running separate sleeves. (One note on the data: We record the most recent closing or reopening date, but we don’t maintain the full history, so I don’t have all the closings to draw on.) I’ve run this median closing data past some trading cost consultants, and they told me it was pretty close to the levels where they recommend closing. For U.S. small caps, the median closing level is $ 723 million, and for foreign small caps, it was a nearly identical $ 730 million. The smallest closing level was $ 15 million for Birmiwal Oasis BIRMX , and largest was AllianzGI NFJ Small-Cap Value PSVIX , which closed at $ 5 . 9 billion. Surveying the Morningstar 500 funds, I see that many funds above that median closing level are closed, multimanager, or passively managed. How- ever, T. Rowe Price New Horizons PRNHX is not. With $ 14 billion in assets, it’s worth keeping an eye on. The plus side is that the fund isn’t getting a lot of inflows this year, and T. Rowe Price has both a good record of closing funds and of funds per- forming well after closing. Asset size is part of why the fund received a Morningstar Analyst Rating of Bronze rather than Silver or Gold. As I noted in the cover story on small caps in the July issue, flows into small-cap funds have been rather mild consid- ering the strong five-year returns. For mid-caps, the median is $ 2 . 9 billion as set by Artisan Mid Cap ARTMX . Schroder US Small & Mid Cap Opportunity SMDVX closed at $ 275 million, while T. Rowe Price Mid-Cap Growth RPMGX closed at $ 16 . 7 billion. Most of the really big mid-cap funds are in redemptions, so the markets are fixing some of the problems. Fidelity Low-Priced Stock is a massive $ 44 billion, but at least it’s slightly shrinking. In that fund’s case, Tillinghast has proved his mettle, but when he retires I’ll start to worry.

The first fund I found with one-year flows above $ 1 billion was American Century MidCap Value ACLAX , which has $ 4 . 7 billion in assets. In fact, the fund has brought down turnover as assets have grown. However, the number of holdings and market- cap exposure have not changed. Performance has slumped lately, but as I said before, I’d be cautious about assuming cause and effect there. I’d say the fund is starting to send some warning signs, but it’s early days. It merits a close watch, but I’m not worried yet. Yes, there are some large-cap funds that have closed to new investors, but it’s a small list, and most of the names are focused.That makes sense, as focused large-cap funds naturally feel a much greater impact of flows than others. For example, Janus Twenty JAVLX closed at $ 9 billion in assets, and Sequoia SEQUX partially closed at $ 4 . 9 billion. The diversified Vanguard Primecap VPMCX and Vanguard Primecap Core VPCCX closed on the same day in 2009 at around $ 26 billion and $ 3 . 8 billion, respectively. The two have a ton of overlap, so really it’s more like a closing at $ 30 billion. Our median is $ 4 . 3 billion for the focused Touchstone Sands Capital Select Growth PTSGX . The foreign large-cap median is very close to that figure, too. That’s not a bad guideline for a focused large-cap fund, but I wouldn’t apply it to a diversified fund. Among focused large-cap funds in the Morningstar 500 , Fairholme and Longleaf Partners LLPFX are currently on an asset diet, as each has had more than $ 1 billion in outflows the past year, so no worries there. Yacktman YACKX and Yacktman Focus YAFFX have both seen inflows of more than $ 2 billion in the past year, and both are north of $ 10 billion. The good news is that they are comfortable holding cash. Still, it’s something to watch. Conclusion Closing a fund is one of those areas where a fund company’s and fund shareholders’ interests can diverge. I rarely put asset size at the top of my factors when looking at a fund, but ignoring its effects is a mistake. œ