The fund world buzzed when the Fidelity Magellan Fund (FMAGX), at $45 billion, recently reopened to investors after a 10-year hiatus. Lost in the noise was the sound of many other smaller funds also throwing open their doors—funds led by managers who don't get the press coverage Magellan's Harry Lange does but who are also widely respected in money-management circles.Many of the funds focus on smaller-cap stocks, a category that ended a seven-year winning streak in 2007. The Russell 2000 Index is down 18.8% from its July, 2007, high, and the sector continues to suffer as institutional investors rotate into what they view as more reasonably priced and less economically sensitive larger-cap stocks. The drop in assets is a driving force behind the reopenings, as managers seek cash to meet redemptions and avoid selling holdings before they want to. Which raises the question: If the big money's getting out, why would anyone want to get in now?
To gain a toehold in selected funds with best-in-class, battle-hardened managers, that's why. Staking a small claim now means that when the sector starts to recover, you won't be locked out when funds inevitably close again. Existing shareholders usually can add money in a fund closed to new money.
One fund well suited to tough economic times is the $380million FMI Common Stock Fund (FMIMX). It's among the least volatile in the mid-cap blend category, and co-manager Ted Kellner remains focused on companies with strong balance sheets and steady cash flows. During the last three-year bear market, the fund had one down year, losing 6% in 2002. Kellner is buying stocks he thinks have been unduly hurt by economic nervousness, such as Beacon Roofing Supply and employee staffing company Korn/Ferry International (KFY).
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