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) -- Vanguard has closed its

Capital Value Fund

(VCVLX) - Get Vanguard Capital Value Inv Report

to new investors, after top holdings like

Wells Fargo

(WFC) - Get Wells Fargo & Company Report



(QCOM) - Get Qualcomm Inc Report

put the fund at risk for overheating.

The move to close the fund to new investors is in part to shield existing investors, Vanguard notes. The influx of more than $740 million into the fund this year could drive performance-chasing investors to trade in and out of the fund, hiking transactional fees for all. The fund has risen more than 76% year to date and tripled in size.

Vanguard's action could be judged as a bullish indication for mutual fund investors. After the market recovered from Internet-bubble lows in 2003, many popular mutual funds were closed to new investors. The downturn in 2008 once again spurred a reopening of funds. The fact that Vanguard can afford to be selective is a good sign that flows are on the upswing.

In addition to WFC and QCOM, VCVLX's top five holdings include

Delta Air Lines

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(DAL) - Get Delta Air Lines, Inc. Report



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Bank of America

(BAC) - Get Bank of America Corp Report

. The fund, which seeks long-term return through investment in "undervalued" securities, has approximately 38% of its portfolio allocated to its top 10 holdings.

Rapidly rising mutual funds often attract performance-tracking onlookers. In an interview with

The Wall Street Journal

, Vanguard Chief Executive Bill McNabb noted that "despite our efforts -- at both a company and an industry level -- to educate investors about the perils of performance-chasing, we continue to be concerned about this behavior."

By closing the fund to new shareholder accounts, Vanguard will provide a "cooling-off" period for VCVLX. Existing investors will continue to be allowed to invest in the fund. This cap will prevent new investors from churning over shares of VCVLX in the short term.

Performance chasing is a dangerous maneuver seen across the security spectrum. Often, investors who climb in to mutual funds or ETFs that have spiked face the tough reality of volatility on the way down. Funds that move fast are often the most volatile, and these holdings are often better satellite positions than core components.

Vanguard insists that concerns about performance-chasing, not size, presented the biggest threat to the fund. Despite the fund's burgeoning assets, VCVLX management insists that size did not impact the fund's investment strategy.

This sort of investor risk management, however, could soon be more of a factor for one of mutual funds' greatest competitors: ETFs. Some of these traditionally passively managed investments have begun to actively manage "overheating" risks.

Red hot commodities markets have driven investors into ETFs like

United States Natural Gas

(UNG) - Get United States Natural Gas Fund LP Report


PowerShares DB Commodity Index Tracking

(DBC) - Get Invesco DB Commodity Index Tracking Fund Report

in recent months. New futures contract regulation, however, has forced both of these funds to restructure their portfolios before "overheating" and passing position limits.

Investors should consider suitability first when picking an ETF or mutual fund, and the role that the fund will play in big-picture investing. Investors chasing performance may not only be met by an abrupt downturn, but also investment limitations and regulatory uncertainty.

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion has no positions on any of the equities mentioned.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.