Title: When Funds Turn Cold, Do You Sell? by Michael A. Pollack
Description: Steve explains how to decide whether to stay or whether to go when top performing mutual funds turn into laggards.
“Keeley Small Cap Value, which focuses on smaller companies, sizzled in the mid-2000s. A 33% total return in 2004 beat its category average by 14 percentage points, putting it in the top 1% of its group.
But in 2008, its performance slid dramatically. Its average return of minus 2.5% a year for the three years through July places the fund in the bottom 4% of its Morningstar category for that period.
The fund appears to be a victim of its earlier success, says Stephen Craffen, an adviser in Fair Lawn, N.J. From around 2005 to 2007, it remained open to new shareholders, even as assets ballooned to more than $3 billion from around $300 million.
As funds swell, their managers have to take larger and larger positions to make a difference in overall portfolio performance.
Mr. Craffen, founder of Stonegate Wealth Management LLC, says he is gradually pulling clients’ money out of Keeley, selling shares whenever he needs cash to rebalance portfolios. Its performance hasn’t lagged as much in the past nine months, but I am fearful just because of its size, he says.”
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