Brandywine cuts minimums as others go higher

In a surprising move, Friess Associates of Delaware LLC has cut the minimums on three Brandywine funds.

The Greenville-based company lowered the minimum investment for the Brandywine Fund and the Brandywine Blue Fund to $10,000, from $25,000, effective last Saturday. It also lowered the minimum investment for the Brandywine Advisors Fund to $10,000, from $100,000.

Industry watchers expressed surprise, given the fact that some fund companies slap high minimum investments on their funds to discourage market timers.

But Friess Associates doesn’t expect market timing to increase on its Brandywine funds now that it has the minimums.

“The new $10,000 minimum is still high enough to discourage fund hoppers in an industry where many funds require minimums of between $1,000 and $2,500,” Bill D’Alonzo, the firm’s chief investment officer, said in a letter to investors last month.

And fund experts say that high minimums don’t always discourage market timing anyway.

“It’s not necessarily a deterrent because, so far, the timing that has come to our attention involves big investors,” says Burton Greenwald, a mutual fund consultant in Philadelphia.

Such investors – which include firms like Canary Capital Partners LLC, the hedge fund named in the recent mutual fund scandals – can afford high minimums, Mr. Greenwald says.

But that hasn’t stopped companies such as The Vanguard Group Inc. in Malvern, Pa., from raising the minimum investment on some of its more popular funds to $25,000 over the past few years. And Pacific Financial Research Inc. in Beverly Hills, Calif., has raised the minimum on its Clipper Fund to that level.

“Our goal is to encourage investors to make a long-term commitment to a fund, because short-term trading has a deleterious effect on all other shareholders,” Rebecca Cohen, a Vanguard spokeswoman, said via e-mail.

“Funds with higher initial investments tend to be unattractive to short-term investors and speculators,” Ms. Cohen wrote. “We have found that the higher initial minimums have been a successful deterrent against short-term traders.”

Copycats unlikely

Fund experts, however, say they don’t expect companies with high investment minimums to follow Friess Associates’ lead anytime soon.

That is because the firm isn’t a typical fund company, says Kunal Kapoor, associate director of fund analysis at Morningstar Inc. in Chicago.

For example, many fund companies that charge high minimums allow investors to get out of paying those minimums by purchasing their funds through a supermarket.

Consider, for instance, the Rydex Funds in Rockville, Md.

Individual investors who purchase Rydex funds directly from the company face a minimum investment of $25,000, and advisers face a minimum of $15,000.

But if they go through a fund supermarket, some minimums are as low as $1,000, says Dawn Kahler, a Rydex spokeswoman.

For the most part, however, the Brandywine funds are sold directly to investors, says Christopher Long, chief operating officer at Friess Associates.

The funds aren’t offered on a lot of supermarket platforms, and they can’t be purchased at a discount as a result, Mr. Long says.

In that sense, the funds will still have unusually high minimum investment requirements. But whether that will discourage “fund hoppers” is debatable.

Rydex doesn’t discourage market timing.

The fact that it charges high investment minimums for those investors who deal directly with the company is telling.

Ms. Kahler says Rydex charges higher minimums because it wants to court sophisticated investors.

It has nothing to do with keeping market timers out of the funds, she says.