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Fund Openings, Closings, Manager Moves: AIM to Close Mid-Cap Fund

Ian McDonald

AIM Funds said Thursday it would close its (AMCOX)Mid-Cap Opportunities fund when it hits $750 million in assets, which could happen in a hurry. The fund is performing well and already has between $500 and $600 million, according to the company.

The fund, which focuses on small- or mid-cap growth stocks, is up 159% over the past year, which beats more than 80% of its peers according to Morningstar.

But the team-managed fund, which launched at the end of 1998, has taken a different route to that outsized return. The fund applies a long/short strategy, holding stocks with positive earnings surprises and selling short those stocks that have earnings disappointments. Short-selling, or shorting, is a bet that a stock's price will fall. It involves selling borrowed stock in hopes of buying it at a lower price later on. The fund is allowed to short up to 25% of its portfolio at any given time.

Shorting can be a big boost in a down market, giving a fund a way to make money while stock prices fall. Of course, that assumes the manager is effective at picking losers.

Since the broker-sold fund is closing at an asset target, rather than a given day, it's hard to say when the doors will shut. The fund isn't very cheap. The maximum front-end load, or sales charge, on class A shares is 5.5%; the maximum back-end load on class B shares is 5%; the maximum back-end load on class C shares is 1%.

Annual expenses range from 2.43% to 3.1%, according to the fund's prospectus. The fund's average peer has a 1.63% expense ratio.

Fremont Micro-Cap Fund to Close

Highflying (FUSMX)Fremont U.S. Micro-Cap, up more than 200% over the past year, will close to new investors Friday. It's the second micro-cap growth fund to close this week. (TMCGX)Turner Micro-Cap Growth closed to new investors Tuesday.

Micro-cap funds typically close when their assets are around $500 million because it's difficult for larger funds to move nimbly among thinly traded micro-cap companies without moving their prices and reducing the fund's returns. While Turner Micro-Cap closed at $250 million, Fremont's fund is already over $1 billion, and it has nearly doubled its assets over the past 10 weeks, according to Morningstar.

It appears money was coming in faster than subadviser Robert Kern could put it to work. At year-end, the fund's cash position was nearly 30%. The average fund has 5% or less in cash.

The fund's sizzling performance led to the steep inflows. Launched in 1994, Kern's fund has posted a 50% average annual return over the past five years, which beats a cool 99% of his peers. At year-end Kern, had nearly half the fund invested in tech stocks.

Current investors will still be able to buy shares after Friday, and advisers with clients in the fund can open new accounts after the fund closes. If you want to get into the fund, download a prospectus and application from the firm's Web site and mail in a check postmarked no later than March 10.

Kern also manages (FUSSX)Fremont U.S. Small Cap, which is open. The fund is up 174% over the past year, which beats more than 80% of its peers, according to Morningstar.

Strong Turns to Brokers

Strong is the latest no-load shop to start wooing brokers.

On March 2, the $42 billion Milwaukee shop rolled out adviser share classes on 12 funds: (SGRIX)Growth & Income, (SGROX)Growth, (SBCHX)Blue Chip 100, (SOPFX)Opportunity, (SGRTX)Growth 20, (SENTX)Enterprise, (STHYX)High-Yield Bond, (STHBX)Short-Term High Yield Bond, (SHYLX)High-Yield Municipal Bond, (SXFIX)Municipal Bond, (STSMX)Short-Term Municipal Bond and (SSHMX)Short-Term High-Yield Municipal Bond.

The new share classes don't carry a front- or back-end sales charge, but they do levy an annual 0.25% marketing charge, known as a 12b-1 fee, to pay financial advisers and brokers. Strong will continue to sell its 51 funds directly to consumers without the 12b-1 fee.

Many no-load firms, such as Gabelli, have added share classes that help them access the broker-sold channel. Even though accounts sold through brokers often have longer holding periods, sales through these advisers are growing faster than in the direct, or no-load, world.

In an unrelated move, Strong is asking (STRFX)Total Return shareholders for permission to focus the fund on growth without concern for income and to change the fund's name to Large Cap Growth. With a yield of 0%, according to Morningstar, it appears the changes would better reflect how the fund already invests and performs.

Morningstar classifies the fund as large-cap growth, and the fund beats its average peer over the past one-, three-, five- and 10-year periods. Its 21.2% return over the past 10 years beats nearly 70% of the fund's peers.

Votes on the issue are due late next month. If approved, the changes will be made on May 1.

Alleghany Imposes Redemption Fees

No-load Alleghany Funds slapped a 2% redemption fee on shares of two international funds sold within 90 days of purchase in an effort to discourage market-timers.

Market-timers rapidly move money from fund to fund, attempting to profit from broad market moves. That approach typically boosts a fund's operational expenses, leaving long-term investors to foot the bill.

The funds with the new fee are (PIAIX)International Developed and (PEMIX)Emerging Markets. Many fund companies have added redemption fees to discourage short-term traders. As usual, the money raised by the fees will go to the fund's assets, not the fund company.

Both funds have lower expenses than their average peer, according to Morningstar.