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So many good reopened funds, so little room in the portfolio.
The equity markets' bearish turn since October has caused a lot of anxiety for investors. It also has created some happy conundrums for fund investors.
A number of terrific but heretofore closed funds have reopened to replenish assets depleted by outflows and to take advantage of opportunities created by the downturn.
Do you jump at what could be a fleeting chance to hire a terrific manager or management team? How do you choose among all the great managers who have started taking money from new investors again?
For some of the more than 30 funds that have unlatched their gates in 2008, the answer to the first question is easy. The list of funds that have or plan to reopen their doors reads like a mutual fund hall of fame. It includes Dodge & Cox Stock (DODGX), Dodge & Cox Balanced (DODBX), Longleaf Partners (LLPFX) and, most recently, Sequoia (SEQUX), which, until it reopened May 1, was last open during the Reagan administration.
We have greeted these reopenings with enthusiastic buy recommendations because the funds have seasoned managers; consistent, time-tested strategies; solid, investor-focused cultures; and top-notch long-term records.
You can't own them all
The answer to the second question is tougher. It depends on your own goals, risk tolerance and predilections as an investor, as well as on what you already own.And the sad truth for fund junkies is that as much as you may admire these funds, it would be unwise to own them all. Keep in mind that you may already have a perfectly sound, diversified portfolio that would be thrown off-kilter if you chased one of the reopened funds.
As Vanguard founder John C. Bogle has often said, it's foolish to abandon a good plan for the pursuit of a perfect plan. It's also possible to have too much of a good thing. Owning too many funds, even great funds, can introduce unintended sector and stock bets to your portfolio because their holdings may overlap. Or it could turn your portfolio into nothing more than a more expensive version of a market-tracking index fund.
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My colleagues and I have been wrestling with these very questions because many of us are interested in adding one of these newly available funds to our holdings.
To help you determine what to buy, here's a summation of our discussions and analyses of some of our favorite recently reopened funds from Dodge & Cox, Longleaf Partners and Sequoia. They're all value-oriented funds that have drifted toward the large-blend (or core) area of the style box in recent years, so they pose some of the more difficult decisions for investors shopping among reopened funds.
If you have a long time horizon, you probably can't go wrong with any of these. But there are some important details that may tip the scales in one direction or the other, depending on your situation. I'll tell you which way I'd tip if pressed, too.
Dodge & Cox Stock and Dodge & Cox Balanced
Nearly two years ago I wrote in an analysis that "the next time new investors get to buy Dodge & Cox Stock, they won't want it anymore" (the same could have been said for Balanced). I didn't think that day would come so soon, though.After being among the decade's best-selling funds, these funds were abruptly sold off in 2007 by investors when they began underperforming for the first time in nearly 10 years.
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A classic Buffett-style fund reopensMorningstar senior fund analyst Mike Breen describes what sets Sequoia apart.
Ironically, Dodge & Cox had repeatedly warned in shareholder communications and interviews that the funds' streak of outperformance versus the S&P 500 and other large-value funds was unlikely to continue unabated. Furthermore, the people, process and culture responsible for such sterling long-term results had not changed.
These are still terrific core holdings that I would buy in a heartbeat if I were starting a portfolio from scratch or seeking a diversified complement to an aggressive growth portfolio.
Continued: Longleaf Partners and Sequoia
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