Marquee funds start closing the door

A trio of big-name stock pickers have announced they'll be closing the door to new investors in another sign that there is a shortage of deals to be found in equities. And that's good news, at least for fund shareholders. The $13.7 billion Yacktman Fund (YACKX), the $11.8 billion Yacktman Focused Fund (YAFFX), the $11.5 billion Vanguard Capital Opportunity Fund (VHCAX) and the $7.7 billion Sequoia Fund (SEQUX) all announced within the last week that they will be closing to new investors. “We believe there is some truth to the adage 'size is the enemy of performance,' and would like to maintain our ability to make investments in midsize companies that can provide meaningful returns to our shareholders,” Robert Goldfarb, portfolio manager of the Sequoia Fund, wrote in a note to shareholders this week. The closings aren't completely surprising, given how the funds have stocked up on cash in their portfolios. Both Yacktman funds, managed by Donald and Stephen Yacktman, had more than 20% cash as of Sept. 30. The Sequoia Fund, managed by Mr. Goldfarb since 1998, has 17% cash and the Vanguard Capital Opportunity, which is subadvised by Primecap Management Co., has 6% cash — triple the large-cap-growth category's average of 2%, according to Morningstar Inc. “We think it's prudent to take a soft close at a point where we can continue to have the flexibility to manage our investment strategy,” said Jason Subotky, co-portfolio manager of the Yacktman funds. Combined, the Yacktman funds have grown to almost $30 billion from less than $400 million in 2008. The Yacktman and Sequoia funds both carry five-star ratings from Morningstar. The Vanguard Capital Opportunity Fund has a four-star rating. Current shareholders should applaud the moves, said Jeff Tjornehoj, a senior research analyst at Lipper Inc. “It's a good sign that managers are interested in conserving capacity for existing shareholders and less concerned about their own profitability,” he said. It also could be a sign the market is, at best, fairly valued and, at worst, due for a correction. In the first quarter of the year, three of the five largest emerging-markets funds closed to new investors. It turned out to be a prudent call, as the MSCI Emerging Markets Index struggled for most of the year. It's down about 1% since the start of the second quarter.