If you own shares of a mutual fund that's closed to new investors, you've probably done well. But if your fund starts taking new money again, should you worry?

Most mutual funds that close their doors to new investors do so for one reason: They've become so successful that they've attracted more money than they know what to do with. Performance-chasing investors often bombard the hottest funds with new money, making it difficult for fund managers to find suitable investments. For funds that concentrate on just a few stocks -- especially funds that invest in small companies -- it becomes impossible to invest without moving a stock's price, which can really hurt returns.

But the same isn't true for funds that reopen. There are many different reasons why fund managers start taking new money again.

Lots of new options
The long bull market has led many closed funds to reopen their doors. Last summer, Tweedy Browne Value and Fidelity New Millennium started taking new money. Tweedy changed its investment objectives to give managers more choices in investing fund assets.

Even more recently, top-performing FPA Crescent Fund reopened to make up for fund redemptions. After briefly reopening in 2006, Longleaf Partners is considering a partial reopening. And Oakmark reopened two of its international funds last week, both of which have had a terrible 2007 that led to an investor exodus.

A look at reopened funds
The real question for investors, though, is whether a fund's performance will stay strong -- or get even better -- when it reopens. Over the years, dozens of funds have closed and then reopened. So it's worth taking a look to see how they've done. Here are just a few of them.

Fund

Year Reopened

Return in Following Year

Average Annual Return Since Reopening

S&P Index Fund Return in Same Period

Vanguard Windsor

1999

15.9%

7.6%

1.5%

Fidelity Contrafund

2000

(12.6%)

8.8%

3.2%

Vanguard Capital Opportunity

2001

(27.9%)

10.7%

5.9%

Gabelli ABC

2003

1.9%

6.4%

9.0%

Oakmark Select

2004

4.8%

0.8%

8.5%

As you can see, the results are a mixed bag. Some funds clearly go on to find more success after they reopen. Vanguard Windsor, for instance, dodged the first two years of the bear market in 2000 and 2001 with stocks like Alcoa (NYSE: AA) and Ross Stores (Nasdaq: ROST). Contrafund, meanwhile, had trouble with the bear as it picked Tenet Health Care (NYSE: THC) and Irish biotech Elan (NYSE: ELN), but it recovered its footing in the ensuing recovery.

Yet not all funds have been so lucky. Oakmark Select, for example, has struggled since reopening. A huge bet on Washington Mutual (NYSE: WM), its biggest holding at more than 13% of assets, so far hasn't paid off. Exposure to retailers like Limited Brands (NYSE: LTD) has also hurt returns.

Should you buy?
You shouldn't be in a hurry to buy shares of a newly reopened fund simply because it was closed for a while. Just as emotionally buying or selling stocks can lead to bad results, buying a fund based only on the prestige of being able to obtain once-limited shares makes no sense.

Also, you should understand both why a reopening fund decided to start taking new money as well as why it closed in the first place. Especially with sector funds, if managers closed a fund because they believed stocks were getting overheated, then reopening may actually reflect that managers expect sub-par performance going forward. On the other hand, if managers simply ran out of places to put new money to work, several years of concentrating on research may have allowed them to replenish their supply of good investment ideas.

So, in evaluating a newly reopened fund, apply the same standards you would with any other fund. Combined with a firm understanding of why the fund reopened, that should give you enough insight to make the right decision.

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Fool contributor Dan Caplinger used to own a fund that had closed, but he didn't hold on for very long. He doesn't own shares of the companies mentioned in this article. Washington Mutual and Limited Brands are Income Investor recommendations. Limited Brands is also an Inside Value selection. The Fool's disclosure policy always performs well.