Theoretically, open-end mutual fund prices can experience a significant increase in price. However, three factors need to be considered to provide a practical answer to the question.

First, open-end mutual fund shares are priced at their net asset values (NAV), which are computed on a daily basis by dividing the total dollar amount of all the securities in a fund's portfolio, less any liabilities, by the number of fund shares outstanding after market close. In effect, it is the value of the underlying securities in a fund's portfolio that provides the basis for a mutual fund's pricing. Because fund shares are issued to (sold) and bought back (redeemed) from fund investors by the fund company, fund share prices are not subject to the buying and selling forces of the market, which tend to exert wider price swings than NAV pricing.

Second, most open-end mutual funds have portfolios that are quite diversified, which cushions the impact of dramatic price movements, positive or negative, in a portfolio's holdings. Over the short term, generally speaking, "significant" price increases are not typical of open-end fund shares.

Lastly, in view of the above, mutual fund stock and bond prices should experience less volatility than individual equity and fixed-income securities. Nevertheless, within the fund universe, certain categories of funds are subject to price movements that are greater than others because of the nature of their holdings and investment style. For example, Vanguard's large-cap value stock fund (U.S. Value Fund) recorded a five-year (2002-2006) NAV appreciation of 29%, while for a similar period, Century's small-cap growth stock fund (Small-Cap Growth Fund) had a 67% NAV appreciation.

It should be noted here that an open-end mutual fund's performance needs to be judged by its total return, both annually and over extended periods of time, and not its net asset value. Because funds must pay out their income and capital gains on an annual basis, fund investors look for benchmarks and assess whether peer funds are beating total returns, rather than net asset value performance.





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