Signs That Your Sweet Fund Is About to Turn Sour

The (RYLPX Quote)Royce Low-Priced Stock fund, for example, was a tiny $24 million fund back in 1999. But with the run-up in small-cap stocks in 2000 and 2001, this fund's size swelled. Today that Royce fund is almost 100 times bigger, with more than $2 billion in it. Three years ago, the fund owned about 55 stocks. Now that number is closer to 200. And sure enough, the fund's performance has started to lag similar small-cap funds.

To stem the inflow of money, this Royce could have closed its doors to new investors. It hasn't. (Mutual fund firms, after all, make money off the total assets in a fund.)

But even when a fund does close, it's usually happens too late. The fund's already too big. In fact, a fund cutting off new investments is a good sign that performance will weaken.

A Manager Hits the Road

When a top-notch manager leaves a fund, you might want to think about doing the same thing. If the person who built a fund's outstanding record is no longer there, its future is uncertain.

And you don't have to wait around to see if the new manager is a genius or an idiot.

A manager departure is one of the few signs you can rely on to tell if a fund's going to stumble. The SEC is never going to force fund companies to highlight and explain changes in their funds that could hurt future performance.

You're on your own.