Let’s talk about closed funds. First, why do funds close? Second, what does it mean for you when a fund closes? Finally, what can, or should you do about it?
Mutual funds often close because fund managers are limited in how much cash they can handle. And sometimes their success actually hurts them, as investors, excited by a hot streak, pour boatloads of money into a fund in a short period of time.
When that happens and a manager can’t find good places to invest the cash, the fund closes.
Vanguard has often closed funds after strong track records have prompted investors to start shoveling money into a hot fund.
Some funds only close to new investors. That means if you had an account in the fund when it closed, you can keep putting money into it. Other funds may simply set their investment minimums high enough to keep the bulk of new investors out. And then some funds close completely. That means that even existing investors are prevented from adding money to a fund.
If a fund closes its doors to you, you have three options:
- Wait until the fund reopens.
- Find a loophole and get in the back door.
- Find a clone that performs similarly. Generally, I look for clone funds run by the same manager.
In the past year, Vanguard has reopened several of its top-performing closed funds to investors in its Flagship program, meaning they are kind of open, but not entirely. And a series of well-known value investing shops, from Tweedy Browne and Dodge & Cox, to Southeastern Asset Management and Third Avenue, reopened their own closed funds after the markets took a 15% drop from their previous highs.
I mentioned a back door, which works when you don’t know if a closed fund will ever reopen.
The idea is to have an existing shareholder transfer shares into your name so that the fund company must open an account for you. It’s the same thing as if someone transferred shares of IBM or Google into your name.
At Vanguard, the form you want is the Change of Ownership form—most fund companies have one. Then find a trusted friend who is a shareholder in the fund. In the old days all it took was one single share to open a new account. Now, even transferred accounts have to meet the fund’s minimum.
Give your friend enough money to meet the fund’s account minimum and ask them to invest it in their account. Once it’s invested, they can transfer the appropriate number of shares of the fund to you. Not all funds will allow this, and you might have to sort through a lot of rules, but it can work—a number of my subscribers have reported success with doing this at Vanguard over the years.
If all else fails, look for a clone of the closed fund. For example, Vanguard Capital Opportunity (VHCOX), run by PRIMECAP Management, is one of my favorite funds. It closed in 2004. But PRIMECAP also manages three of its own funds, the PRIMECAP Odyssey funds. PRIMECAP Odyssey Aggressive Growth is a close match to Capital Opportunity. In fact, I expect it to outperform in the long term, due to its smaller size.
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Since the Odyssey funds were first opened in late 2004, they’ve matched or beaten the performance of their like-managed Vanguard counterparts.
Even if you can’t find a similar fund managed by the same team, you can often find a fund that’s just as good but managed by another team. For example, when I looked for a team that could match the performance at the closed Vanguard International Explorer, I came upon a group of managers at Fidelity (though one of their funds is now closed) as well as at T. Rowe Price International Discovery. All have comparable skill in providing great returns in international small-caps.
I hope you found this video helpful. To get my recommendations for other closed funds, sign up for my newsletter, The Independent Adviser for Vanguard Investors. Each month I’ll bring you independent and unbiased in-depth information on Vanguard funds, including the best funds to buy, alternates for closed funds, advance warning of funds likely to close, changes in management, and much more. Sign up and get started today!
Annoyed at Vanguard? Here’s How You Get Attention—Fast!
Most times, Vanguard’s vice presidents can solve your problems. But there’s nothing more frustrating than thinking you’ve reached a resolution and finding that, well, the problem remains. In that case, take it right to the top. I suggest you drop Vanguard Chairman John Brennan a letter explaining what went wrong and how you’ve tried to get the problem resolved.
To get fast and prompt attention, write to:
Chairman John Brennan, Chairman
The Vanguard Group
P.O. Box 876
Valley Forge, PA 19482
Additional Contact Info:
Vanguard Investor and Client Information
800-662-SHIP (800-662-7447) or 800-662-CREW (800-662-2739)
For fund prices, yields, prospectuses, annual reports and other information.
Vanguard Online Service
www.vanguard.com
800-860-8394
For help with Vanguard’s website.
Vanguard Retirement Resource Center
800-205-6189 or 800-414-1321
For all information concerning individual retirement accounts (IRAs).
Vanguard Tele-Account Service
800-ON-BOARD (800-662-6273)
For account information and transactions by phone.
Vanguard Client Services
800-662-CREW (800-662-2739)
For account balances, exchanges and other account inquiries.
Vanguard Brokerage Services
800-992-8327
Vanguard Brokerage Fixed-Income Orders
800-669-0514
Vanguard Flagship
800-345-1344
800-451-2848 (fax)
For investors with more than $1,000,000 invested with Vanguard. Available 8 am to 5 pm ET, Monday through Friday, and 9 am to 1 pm on Saturday.
Vanguard Voyager
800-284-7245
For investors with $250,000 to $1,000,000 invested at Vanguard.
Vanguard Telecommunication Device for the Deaf (TDD)
800-749-7273 (Client Services)
800-952-3335 (Investor Information)
800-523-8004 (For 401(k) or 403(b)(7) plans)
Non U.S. callers
610-669-1000
Call this number collect if you cannot access a toll-free 800 or 888 number.
Vanguard Financial Center
455 Devon Park Drive
Wayne, PA 19087-1815
For all correspondence sent by overnight or registered mail. Most overnight services will not deliver to a Post Office box, so use this address.
