High-Minimum Funds That Are Worth the Money

However, even though these funds have turned in a good performance, charge low fees and are run by experienced managers — everything we like to see in a fund — they never make the cut for our screens. That's because of one crucial detail: high minimum investments. According to Lipper, Brandywine funds require an initial investment of $10,000 for most customers, about double the amount we usually favor.

Each week, the Smartmoney.com fund screen requires its finalists to have a minimum investment requirement under $5,000. There's nothing terribly scientific about that cutoff other than the fact we think anything more is prohibitively expensive for mainstream investors. But that means we kick good funds, like those at Brandywine, to the curb. This time around, though, we're relaxing our typical requirements. For this week's screen we started with a universe of 688 funds that demand a minimum investment between $5,001 and $25,001. We nixed 356 due to loads. Once we added in our usual performance and expense criteria, we were left with 28 funds.

Even though we prefer funds with low minimums — read our story to see why — it's worth taking a closer look at their counterparts. There are some compelling reasons for having high barriers to entry, reasons that can have a profound impact on your portfolio.

For example, in the past Vanguard has raised the minimums of some funds it thinks are attracting assets at too rapid of a pace solely because the funds invest in hot sectors, like energy. This was Vanguard's way of trying to prevent investors from chasing performance. And, when investors come and go from funds like this, it can raise costs for other long-term investors. "Some investors will talk a good game about getting into a fund," says P.J. DiNuzzo, founder of his namesake investing firm in Beaver, Pa. "But then they just want to rotate out very quickly."

Vanguard will also raise minimums when a fund's asset base is becoming bloated or unmanageable. Again, by increasing the minimum, it can slow down inflows and, ultimately, protect the company's long-term shareholders.

Since a high minimum scares off many prospective investors, the barrier can actually help keep costs down, especially at smaller shops. That's because fund companies must keep account records and print annual and quarterly reports for every one of its clients. The fewer clients a fund has, the less money it has to spend on mailing, printing and other back-office responsibilities. Indeed, the funds on our list charge an average expense ratio of 0.88% a year. That's about half the amount at typical domestic equity stock funds.

"If you have the ability to put all those assets toward a fund, then by all means a dollar saved is a dollar earned," says Kyle Richardson, a regional vice president with the Householder Group, an investment firm in Scottsdale, Ariz.

But Richardson and other experts recommend that if you're eyeing our finalists and are dismayed that you can't afford a $10,000 or $25,000 minimum, don't fret. There may be a back-door option. Some firms allow IRA investors to enter a given fund at a lower minimum, as long as they add to their positions on a regular basis. They give them a free pass because IRA investors tend to be long-term shareholders. As you can see from our table, companies like Third Avenue, Fidelity and Vanguard all offer that option. We think it's a smart way to invest in some decent funds that may otherwise be inaccessible.

As for our finalists, the ProFunds offerings are newcomers to our list. But be warned that these funds are very specialized and designed for sophisticated investors who are looking for hedge-fund-like investment options. Active traders may gravitate toward them; the average investor doesn't need to. Vanguard Windsor II (VWNFX), Third Avenue Value (TAVFX) and Fidelity Leveraged Company Stock (FLVCX) — each of which is returning to our list once again — are better options.

The Brandywine funds focus on growth stocks that have cheap price/earnings ratios, along with excelling earnings-per-share growth estimates. Our favorite, Brandywine Blue, is a concentrated fund featuring 40 stocks. It has been run, in part, by veteran manager Bill D'Alonzo since 1991. The fund was light on financials, enabling it to avoid the subprime and credit crises that have whacked other funds. Instead, Brandywine Blue wisely invested in tech stocks like Apple (AAPL) and energy plays like oilfield-services firm Weatherford International (WFT). The fund is in the top 11% of Morningstar's large-cap-growth category over the last decade.