February 21, 2013 / 7:51 PM / 5 years ago

Fidelity to bar new clients from second small stock focused fund

BOSTON, Feb 21 (Reuters) - Mutual fund giant Fidelity Investments will bar new clients from putting money into one of its successful portfolios focused on smaller companies after strong returns helped assets balloon by roughly one third in the last twelve months.

The $3.5 billion Fidelity Small Cap Value Fund, which handily beat the Standard & Poor’s 500 index with a 20.13 percent return in 2012, will no longer accept cash from new investors after March 1, the company said in a statement on Thursday.

This is the second time in two months that Fidelity has closed one of its small company stock offerings to new accounts, taking a step that has been applauded by analysts as being good for investors and managers as they struggled to put the extra money to work.

Small Cap Value, co-managed by Chuck Myers and Derek Janssen, is one of the Boston-based asset manager’s best performers, boasting research firm Morningstar’s highest five star rating and an average annual return of 10.54 percent since its launch in 2004.

With holdings like TCF Financial Corporation, Superior Energy Services and consumer goods company Hanesbrands, which have all scored strong returns this year, the fund has climbed 10.38 percent so far this year, more than double the Standard & Poor’s 500 Index’ 5.18 percent gain.

It has also outperformed the Russell 2000 index that measures the performance of smaller companies, which is up 6.02 percent.

Demand for the fund had been strong for years but picked up dramatically early this year when rising markets tempted investors to finally put more money into stock portfolios. At the end of 2011 assets stood at $2.3 billion.

“Small Cap Value Fund has experienced a steadily growing asset base and more recently strengthening investor cash flows,” Brian Hogan, president of Fidelity’s Equity Group said. “We’ve analyzed the situation closely, and believe that it’s in the interests of shareholders to close the fund to new investors at this time.”

The move comes only weeks after Fidelity announced in January that it would close its Small Cap Discovery Fund, also managed by Myers, to new accounts. Fidelity’s equity division manages 333 mutual funds around the world and only a tiny number are closed, including its $44.4 billion Fidelity Growth Company fund, managed by Steven Wymer, which stopped taking new clients in 2006.

“It is a very important move especially because Fidelity has not always had the best record for closing their funds,” said Katie Reichart, who covers Fidelity at Morningstar.

But the company’s decision also further limits investors’ choices among funds that specialize in small undervalued companies, she added. “In this category a lot of the good funds are closed.”

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