FPA Capital Fund Does Not Fear Cash

(FPPTX)FPA Capital fund -- one of the best in the business -- will close to new investors July 9, the 20th anniversary of Los Angeles-based First Pacific Advisors managing the fund.

The explanation? A lack of appealing investment opportunities because of a generally overpriced stock market and ballooning assets, the same grounds cited in May 1995 when the fund closed and stayed shut until Jan. 1, 2001. At the 1995 closing, FPA Capital had $288 million in assets; today the fund tips the scales at a portly (for a smaller cap-oriented fund) $1.5 billion.

Closing the fund in 1995 meant missing the gravy years of fund asset gathering and therefore leaving potential management fees on the table. Management fees grow with fund assets.

When the fund reopened at the beginning of 2001 it drew little investor interest. The track record at the time was somewhat unexciting compared to the larger-cap growth and tech funds that ruled the late nineties.

Robert L. Rodriguez, who manages the fund and is also its president and chief investment officer, may be using fund investor enthusiasm as much as market valuations to gauge when to go to cash and when to open and close his fund. When fund investors are most excited about a style of investing, good investing opportunities are near extinct. When investors throw money at you it is best to hibernate until sanity returns to the market.

Few fund companies pass on the easy money following a hot streak and are more than willing to lead lambs to slaughter, charging fees along the way. Fund families are more likely to give investors what they want, not what they need. Most fund sponsors launched Internet funds just before the crash, not because they believed in the future of the medium so much as its salability. Many of the new funds were closed or merged when Internet investing became synonymous with the tulip market bubble of centuries ago and became an almost impossible sell.