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They are ringing the dinner bell on Wall Street.
Sometimes big investment surprises aren't surprising. When wily Sam Zell sold Equity Office Properties for $39 billion in February 2007, he called the peak of the real-estate market, down more than 30% since. When the gullible buyer, private-equity specialist Blackstone Group (BX, news, msgs), sold a tiny share of itself to the gullible public four months later, it signaled the death of the private-equity boom. Blackstone stock is now down about 50%.
Now an elite band of superstar investors is doing the same thing in a different way. By inviting you to share in the enormous wealth they have created, they're announcing the birth of a new bull market.
"Who doesn't want to buy a dollar's worth of goods for 75 cents?" asks David I. Katz, a senior portfolio manager with Weiser Capital Management, of the spate of value-oriented mutual funds that, after years of being closed to new investors, have reopened their doors. "This is an opportunity to take advantage of this fall from grace" of U.S. stocks.
The reopening of a hugely successful mutual fund is like an initial public offering for the Everyman -- an opportunity to buy into a run-up before the mob. To have nearly a dozen reopen within weeks of each other is an exclamation mark on the invitation.
Jean-Marie Eveillard, the manager of two of the reopened funds, could have been speaking for all of them when he said, "At a time when Mr. Market is quickly swinging from fear to greed and back, major investment opportunities may lie ahead."
Bad news can follow closed doors
It is not uncommon for the best mutual funds to stop accepting new shareholders. It's usually because they've been exceptionally successful and are attracting more assets than they can handle. Almost invariably, they've done so well because the markets in which they invest are themselves buoyant.For example, T. Rowe Price International Discovery (PRIDX) closed its doors in March 2000 at the absolute peak of the Internet bubble. The prior year it had shot up 155%, and its assets had nearly quadrupled.
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Bad things tend to happen to funds that close. International Discovery went down 70% in the succeeding three years. Its global marketplace was just as caught up in high-tech mania as the U.S. market was. With assets shrunken by half, the fund reopened in April 2003 to raise money for all the bargains it was discovering. What timing: It soared more than 65% that year and more than 20% in each of the next four.
This happens again and again. Vanguard Health Care (VGHCX) soared more than 40% in 1998 and closed its doors. The next year it eked out a single-digit gain, 14 percentage points less than the market. So it reopened in December 1999 and promptly shot up more than 60% in 2000, when the market itself was entering a bear phase of historic proportions.
And the doors open
The crème de la crème of the recently reopened funds include:- Dodge & Cox Stock (DODGX) and Dodge & Cox Balanced (DODBX). Over the past 15 years, these funds have ranked among the top 1% and 3% of similar funds, respectively.
- First Eagle Global (SGENX) and First Eagle Overseas (SGOVX). The global fund ranks in the top 1% over 15 years and the overseas fund among the top 15% over the past 10. These are the funds Eveillard manages.
- Longleaf Partners (LLPFX). This ranks among the top 2% of its large-cap category over 15 years.
- Royce Micro-Cap (RYOTX), Royce Opportunity (RYPNX) and Royce Low-Priced Stock (RYLPX). The microcap fund has ranked among the top 3% of similar funds for the past 15 years, and the latter two have been in the top 1% and 4%, respectively, for 10 years.
Among funds with only slightly less distinguished records to reopen are Tweedy, Brown Global Value (TBGVX), which has gone up more than 20% in three of the past five years, and Third Avenue International Value (TAVIX), an exceptionally low-risk portfolio that nevertheless has spurted an average of more than 20% each year over the past five years and this year, as of Feb. 27, was beating foreign-stock benchmarks by 7 percentage points.
Continued: A bias toward value investing
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