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The lower returns may not necessarily be a direct result of the closure itself, but may instead be a result of the problems the fund was experiencing already before it closed its doors. However, when a fund’s closure is an indication of problems and when is the closure is actually a signal of prudent management.
When It’s Bad NewsMany funds do not decide to close their doors to new investors until the fund’s performance has already been damaged by its growth. The agency problem, a conflict of interest that can arise between creditors, shareholders and management because of differing goals, is the main reason many funds do not close their doors sooner... Continue to read.
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