There's not a whole lot of good that came out of the market meltdown in 2008, but one positive side effect of the whole fiasco was that dozens of closed mid- and small-cap mutual funds reopened in 2009 and 2010 to replenish their asset bases. However, as the market has recovered, some of these funds have since shut their doors again. It's one of the ongoing difficulties of small-cap-fund investing -- the best-performing funds tend to close, leaving investors scrambling for other options.
Morningstar recently published an online article highlighting five small-cap funds with the largest asset inflows in 2010 and suggesting that many of these funds may be closed to new investment sometime this year. The funds mentioned included Janus Triton (JATTX), Fidelity Small Cap Discovery (FSCRX), and Royce Special Equity (RYSEX). I agree that these funds do face a high likelihood of being shuttered to new investment in the near future, but they aren't the only ones at risk. Here are three other first-rate small-cap funds that could be next on the closed list.
Neuberger Berman Genesis (NBGNX)
This small-cap gem is looking a bit thick around the waist, currently boasting roughly $11.5 billion in net assets, making it one of the biggest small-cap funds around. While the fund still retains a solidly small-cap profile, roughly half of fund assets are in mid-cap securities. Turnover is low here, so management tends to hold on to some of its winners even as they grow. The fund has ridden the success of consumer goods maker Church & Dwight (NYSE: CHD) and packaging manufacturer AptarGroup (NYSE: ATR) for over a decade now. Both stocks now reach into mid-cap territory, but management still believes they have some running room left so they remain staples in the portfolio.
Neuberger Berman has a history of closing the Genesis fund in the past -- it was closed for seven years prior to its reopening in January 2009. The fund is a lot bigger now than it was then, so I'm betting it won't be long before it closes once again. This fund is one of the better small-cap options out there, ranking in the top 6% of its peer group over the past 15 years. So if you've ever had your eye on this fund, get in now while you still can.
T. Rowe Price Small Cap Value (PRSVX)
This small-cap fund has been closed and reopened three times during its current manager's 19-year tenure, so it's not unreasonable to think the fund could be closed yet again. The latest reopening was in May 2008. Since then, the fund's asset base has swelled to roughly $7 billion, a hefty load for any small-cap-focused fund. Manager Preston Athey is leaning heavily into smaller financial stocks, finding value in healthier and more stable community banks that have been buying out their weaker competition. One example is portfolio holding East West Bancorp (Nasdaq: EWBC), which purchased struggling Washington First International Bank last year, and in 2009 acquired United Commercial Bank from the Federal Deposit Insurance Corp. Athey also sees tremendous opportunity in the Washington, D.C., commercial real estate market because of continued government growth and resultant demand for office space. As a result, he has invested in D.C.-area real estate investment trusts Saul Centers (NYSE: BFS) and First Potomac Realty Trust (NYSE: FPO) to take advantage of that growth.
T. Rowe Price Small Cap Value has posted an annualized 11.4% return in the past decade and a half, in the top 20% of all small-cap blend funds. A manager that has put in nearly two decades with the fund adds a level of consistency to returns. Turnover is a minuscule 8% a year, so this fund is suitable for use in taxable accounts, as well as in tax-advantaged retirement accounts. I don't think this fund will be open for much longer, so don't wait too long to act if you want to own this one.
T. Rowe Price Small Cap Stock (OTCFX)
Another upstanding T. Rowe Price fund that faces potential closure in the coming quarters is T. Rowe Price Small Cap Stock. This small-cap fund seeks to invest in a balance of growth- and value-oriented securities, using bottom-up stock selection. Like the Small Cap Value fund, Small Cap Stock features a long-tenured manager that has helped shape the fund's solid returns over the years. Manager Gregory McCrickard has skippered the fund for more than 18 years, leading the portfolio to a 10.3% annualized 15-year return, and landing it ahead of 61% of its competition.
The fund is relatively overweight in the software industry right now, compared to its benchmark. Here, McCrickard looks for high-quality tech names that offer products that improve productivity or reduce costs. Two favorites in this sector right now are Progress Software (Nasdaq: PRGS) and commerce solution software provider Ariba (Nasdaq: ARBA). T. Rowe Price Small Cap Stock has racked up more than $6.8 billion in net assets, so it is also pushing at the edge of its limits. The fund had been closed for five years before reopening in May 2009, so if you don't get in now, it may be awhile before you get the chance to purchase this fund again.
While a rebounding market is an undeniably good thing for our economy and for investors, it is pretty certain that rising asset levels will nudge many hot-performing small-cap funds to close their doors this year. If you want in on some of the terrific funds above or elsewhere in the market, I'd recommend taking action sooner rather than later.
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