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.

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Scoring Fund Size and Style Data

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