Vanguard Will Open 2 of Its Top Mutual Funds to New Investors
New investors will once again be allowed to buy shares of two of Vanguard Group’s best-performing mutual funds later this month--if they can afford them.
The Valley Forge, Pa.-based firm said Monday that its $19.1-billion Primecap Fund and the $4.6-billion Capital Opportunity Fund will reopen April 23. Primecap was closed to new investors in 1998 and Capital Opportunity was given a similar “cooling off” closure starting in March 2000 on the heels of robust returns.
Vanguard also said the minimum investment in Primecap will rise to $25,000 from $3,000 and that investors will be charged a 1% redemption fee if they sell their shares within five years. Those rules are already in place at Capital Opportunity.
Both funds are run by the noted “contrarian” investment team of Howard Schow, Joel Fried and Theo Kolokotrones at Pasadena-based Primecap Management Co., who seek growth stocks at bargain prices.
“In light of the current market climate and more subdued investor sentiment and activity, we believe that we can prudently reopen the two funds and remove the investment limitations for existing shareholders,” Vanguard Chairman John J. Brennan said.
Fund companies often close top-performing funds to new investors to discourage “hot money,” which can flood managers with too much cash to invest nimbly. Redemption fees, meanwhile, are aimed at keeping out short-term investors whose transactions can drive up costs.
The mid-cap Capital Opportunity fund has lost about 12% this year after gaining 18% last year and 98% in 1999. Primecap, which holds mostly large-cap stocks, has slipped about 14% this year after gaining 4.5% last year and 41% in 1999.
After stock funds overall took in a record $309 billion in net new cash last year despite sluggish performance, the industry has been hit by net outflows in the last two months, according to its main trade group and unofficial estimates. In turn, some fund companies have reopened prominent offerings, including Van Wagoner Emerging Growth, Firsthand Technology Innovators and Putnam New Opportunities.
