Fund Reopenings Offer Rare Opportunity

While closed funds can stagnate, newly reopened funds often surge. Consider the experience of T. Rowe Price, which has a long record of reopening funds at market bottoms. The company reopened T. Rowe Price New Horizons(PRNHX Quote), a small-cap growth fund, in 1974. During that year, small stocks lost 20%, according to Ibbotson Associates. Then in 1975, small stocks returned 52.8% and began one of their greatest rallies ever, producing double-digit returns for nine years in a row.

After losing 15% during the 12 months ending in March 2003, T. Rowe Price International Discovery(PRIDX Quote) reopened. During the next year, the fund returned 80.6% and went on to record four years of double-digit results.

Make no mistake, funds do not always skyrocket after a reopening. But the current round of openings presents some unusual opportunities. Many of the reopened funds had been closed for years. Now investors have a chance to grab funds with stellar long-term records.

At the top of the list is Sequoia(SEQUX Quote), which had been closed for 25 years. During the 15 years ending in October, the fund returned 10.5% annually, outdoing 98% of its large-blend competitors and topping the S&P 500 by 3.5 percentage points. Another strong choice is Dodge & Cox Stock(DODGX Quote), which returned 9.6% during the past 15 years, besting 99% of large-value rivals.

Other long-term winners that recently reopened include Longleaf Partners(LLPFX Quote), Matthews Asian Growth & Income(MACSX Quote), and William Blair International Growth(WBIGX Quote).

Small-cap funds present some of the most noteworthy choices. Because small stocks can be difficult to trade, some top fund managers close their portfolios when assets get much above $300 million. As a result, many of the best small-cap funds are closed for long periods.

If you have been holding mediocre small-cap performers, now is a chance to swap them for some of the best in the business. A compelling selection is Wasatch Small Cap Value(WMCVX Quote), which returned 10.2% during the past decade, outdoing 92% of its small-blend competitors and topping the Russell 2000 small-cap index by 5.3 percentage points.

Investors seeking a micro-cap specialist should try Royce Micro-Cap(RYOTX Quote), which returned 9.8% during the past 10 years. For foreign small stocks, consider Oakmark International Small Cap(OAKEX Quote), which returned 11.1%, outdoing 98% of foreign small mid-value competitors. By buying such star performers at a bleak time, investors stand a good chance of achieving solid returns.