Closed Funds Still Rake It In

When the Fidelity Diversified International Fund closed in October 2004, it had about $18.7 billion in assets. The following year the fund pulled in $5.15 billion of new money. That was down from $6.398 billion in 2004 but still quite substantial. And in 2006 the fund's inflows rose to $6.6 billion, despite being closed. The fund now has total assets of more than $47 billion, and it was the ninth-best-selling fund in December, according to FRC.

The Dodge & Cox Stock Fund closed to new investors in January 2004, when it had $29 billion in assets. Though the fund's inflows tapered off a bit once it closed, they certainly didn't stop. For 2004 as a whole it pulled in $7.15 billion. Inflows subsequently dropped to $4.70 billion in 2005 and $4.25 billion in 2006. But the fund now has more than $66 billion in assets and ranked 15th on FRC's list of best-selling mutual funds in December.

No one at Fidelity was available to comment for this story. Representatives at Dodge & Cox declined to comment, referring to the fund's prospectus, which is available on the company's Web site.

Lynette DeWitt, associate director of retail investment markets for FRC, says it's not just whether a fund remains available in 401(k) plans that determines how much new money it attracts after closing, but the number of 401(k)s that offer the fund and how many participants they have.

DeWitt said funds can also attract large sums when investors rush into them in anticipation of a closing.

Of course, it doesn't necessarily matter how much new money a fund attracts, so long as its performance doesn't suffer. Both Fidelity Diversified International and Dodge & Cox Stock have continued to log returns in line with or better than their benchmarks. Fidelity Diversified International has returned an annualized 19.35% over the past three years, 0.59 percentage point less than the MSCI EAFE, according to Morningstar. Dodge & Cox Stock has three-year annualized returns of 15.01%, 4.55 percentage points above the S&P 500.

But not all funds can handle so much new money so well, and that is why investors need to keep a close eye on the returns of popular offerings.

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