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Introduction to Where and Why Asset Size Matters

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Sometimes size impedes performance. The bigger a fund gets, the more danger there is that returns will shrink over time.

What you will learn

  • A Fund's Asset Size and Market Cap
  • A Fund's Asset Size and Turnover
  • How Funds (and You) Can Manage Asset Growth

What do you know?

Introduction to Where and Why Asset Size Matters

Bigger is often better. Most people would prefer a rambling villa to a studio apartment. And everyone remembers the popularity of the SuperSize meal at McDonald's (MCD).

But as it turns out, the SuperSize meal was a disaster for American health; McDonald's discontinued it in 2004. And supersized mutual funds can be just as troublesome. As hotshot funds grow, their returns may become sluggish, weighed down by too many assets. They lose their potency and become average. It has happened to many of the big names.

Asset size can impede performance for any fund, but some types of funds are hurt more than others. It depends on a fund's style. (Note that bond funds don't typically struggle with asset growth. Individual corporate bonds may have less of an impact on performance as a bond fund's assets grow, but in general the bond market is sufficiently large that asset growth doesn't hamper many bond fund managers.)