12.02.2011

Size Makes the Fund Grow Stronger?

12.02.2011
Terry Flanagan

Mutual fund giant American Century closes doors to its value oriented Equity Income Fund.

On November 30, American Century Investments announced it has closed its nearly $10 billion U.S. value yield strategy to new investors; and thus signals the closing of one of the firm’s most notable funds—the American Century Equity Income fund.

“With the best interests of our clients, we close funds only as necessary. Asset size is the primary catalysts in the decision to close,” said American Century Spokesperson Justin Emily Wills.

The American Century Equity Income fund’s net assets this amounted to approximately $2 billion, according to Willis, closing with nearly $10 billion.

The fund’s main objective is to outperform its benchmark overtime with less volatility and superior market downside protection, Willis also said.

The debate over closing a mutual fund has been widely disputed amongst investors between those who believe that a closing is a sign of good manager staying true to a fund’s ability to execute a strategy with a manageable asset size, and those who see a closed fund as a sign of damaged goods.

In American Century’s case, size does not necessarily make the fund grow stronger.

“We wanted to preserve Equity Income’s ability to stay true to its time-tested investment strategy,” said Enrique Chang, chief investment officer of American Century Investments.

From a trading perspective, traditional buy side firms have, in many instances, been challenged with making large orders stealthy as a means of not largely moving the marketplace. Closing a fund can aid a firm’s plight to mask large orders.

“Trading was not a factor of why we closed the fund,” Willis said. “American Century Investments has been a pioneer in the use of electronic trading platforms, such as electronic communications networks (ECN). They’ve allowed buyers and sellers of securities to connect directly and anonymously, which increases the efficiency of capital markets, lowers trading costs and improves returns for investors. “

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