When Mutual Funds Reopen for Business

Barbara Kiviat has a piece today on how ordinary schlubs like you and me now have a Rare Opportunity to buy mutual funds which until recently were closed to new investors:

It’s been years since anyone without an existing account could put money into some of the best-known names in the business, like Sequoia Fund, Dodge & Cox Stock, Longleaf Partners, Fidelity Magellan, Artisan Mid Cap Value, Oakmark Equityand Income, Vanguard International Explorer and Third Avenue Small-Cap Value.

Kiviat makes some good points about checking on low fees and being wary of funds invested in illquid instruments which might yet see further redemptions. But she never asks the big question: is there any reason to suppose that these funds, which did very well in the big bull market, are well positioned to outperform in a bear market?

Even in the best of times, past performance is not much of a guide to future returns. But after a major inflection point like we’ve just seen, it’s clear that the strategies which served investors well during the Great Moderation are not going to be the same ones which make lots of money in years to come.

Is it possible that "some of the best-known names in the business" will be able to navigate the transition? Yes. But I wouldn’t have enough confidence in any of those names that I’d actually place serious money on it.

It’s hard for retail investors to interview fund managers and get a good feel for how they’re going to tackle the years ahead. But without any public indication of how their strategy has changed to reflect changed circumstances, I’d be very wary of throwing money at the heroes of yesteryear.

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