Fund I-Q No.3: Size and Style Compatibility
  1. Mutual Fund Asset Size
  2. Fund I-Q No.3: Size and Style Compatibility
  3. Scoring Fund Size and Style Data

Fund I-Q No.3: Size and Style Compatibility

By Richard Loth (Contact | Biography)

As a fund investment quality, the asset size issue is really a question of at what point is a fund too big. There is no unequivocal answer for investors to grab onto other than to be aware of the following conditions that accompany a mutual fund as it increases in size:

  • As mentioned previously, there is little concern about size with money market, bond and index funds. They can adsorb and efficiently manage large amounts of investors' money.
  • Managed stock funds, particularly in the small-cap category, can encounter problems. Trading costs go up, the availability of appropriate stocks goes down and managing the portfolio according to its investment objective becomes complicated. All these factors can adversely affect fund performance.
  • There is no quantitative benchmark that can tell us what amount of assets is too large for a fund to handle. A number of funds that have been questioned about their large asset bases have continued to operate well despite their ever increasing size. (To read more on this topic, see Are Bigger Funds Always Better?)

Investment Quality No. 3
Investment Quality No. 3 relates to a fund manager's recognition that it is prudent to make sure that the size of the fund's asset base is compatible with its investing style. If investment performance suffers, this is a clear indicator that size may be a problem. Ultimately, if there is a size issue, it becomes a matter for management to decide.

The Fund I-Q Scorecard requires you to enter data on a fund's total net assets, its number of holdings, and a three-year asset growth percentage. These numbers are meant to be informative rather than evaluative. They cannot lead you to a reliable answer to the question of how big is too big for the fund you are analyzing. However, they may help to make you more aware of what is happening to the fund's asset base.

Realistically, the best source of guidance on a mutual fund's size is the scrutiny of fund analysts and commentary in the financial press.

Return to the Main Menu.
Scoring Fund Size and Style Data

  1. Mutual Fund Asset Size
  2. Fund I-Q No.3: Size and Style Compatibility
  3. Scoring Fund Size and Style Data
  1. Alpha

    Alpha is used in finance to represent two things: 1. a measure ...
  2. Equity

    Equity is the value of an asset less the value of all liabilities ...
  3. Series 6

    A securities license entitling the holder to register as a limited ...
  4. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  5. Dividend

    A distribution of a portion of a company's earnings, decided ...
  6. Sharpe Ratio

    The Sharpe Ratio is a measure for calculating risk-adjusted return, ...
  1. Why have mutual funds become so popular?

    Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>
  2. Do mutual funds pay dividends?

    Depending on the specific assets in its portfolio, a mutual fund may generate income for shareholders in the form of capital ... Read Full Answer >>
  3. Can mutual funds invest in hedge funds?

    Mutual funds are legally allowed to invest in hedge funds. However, hedge funds and mutual funds have striking differences ... Read Full Answer >>
  4. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  5. Do financial advisors get paid by mutual funds?

    Financial advisors are reimbursed by mutual funds in exchange for the investment and financial advice they provide. A financial ... Read Full Answer >>
  6. Why is fiduciary duty so important?

    Fiduciary duty is one the most important professional obligations. It basically provides a much-needed protection for individuals ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!