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    Mutual funds

    Why closing to investors is a sign of strength

    NEW YORK — ‘‘No thanks.’’

    That’s what a growing number of mutual fund managers are telling investors who want to hand over their money, and it’s occurring just as many investors are getting comfortable with stocks again.

    The market is at a record high, and more than 300 mutual funds have closed their doors to anyone who wants to put money in the fund for the first time. The funds run a wide range, specializing in everything from short-term Ubonds to dividend-paying Asian stocks. Of the 315 funds closed to new investors, 56 made the move during the first seven months of 2013, according to data from Morningstar. That compares with 49 for all of 2012 and 53 for all of 2011.


    It’s an encouraging trend, at least for those already in the funds, said Todd Rosenbluth, director of ETF and mutual fund research at S&P Capital IQ. ‘‘Funds close to new investors for good reasons,’’ he says. ‘‘They want to make sure they protect existing shareholders.’’

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    Mutual fund companies could earn more by keeping their doors open. But having too much money can make managing the fund more difficult. Stock pickers may run out of ideas they feel strongly about. Managers who specialize in small-cap stocks could also see their ownership stakes get too large in individual companies if they continue pumping money into their favorites.

    ‘‘It’s nice to hear that the industry that has been criticized for being greedy is doing things that are taking the interest of shareholders to heart,’’ said Morty Schaja, chief executive of RiverPark Funds. His company’s RiverPark Short Term High Yield fund closed to new investors in June.

    Investors have been getting more comfortable with stock mutual funds recently as well. They put more money into stock funds than they took out for five straight months from January through May, according to the Investment Company Institute, which represents the fund industry. It’s the first time that has happened in more than two years.

    The increased flow of dollars and big gains for stocks this year have pushed assets for many stock mutual funds higher.


    The BBH Core Select fund closed to new investors in November, before that run. It was for a simple reason, says Jeff Schoenfeld, a partner at Brown Brothers Harriman: Its managers are choosy and want to remain that way.

    The fund has several criteria that companies must pass before the fund will invest, and it typically can identify only about 25 to 30 at a time. Companies must sell an essential product or service, have loyal customers and have a stock price that’s at least 25 percent below where the managers think it should be, for example. The fund owns big companies, such as Berkshire Hathaway, Comcast, and Google.

    ‘‘If you do the math, it leads you to the conclusion that after you reach about $20 billion, you would either own too much of any one company or you’d have to begin diversifying and own a larger number of companies,’’ Schoenfeld says.

    To be sure, the decision to close the fund and protect existing shareholders wasn’t entirely selfless. ‘‘The investment team who work here are invested themselves,’’ Schoenfeld says.