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1.
Why is a large mutual fund's asset size most likely to be in the form of large-cap companies?
Large-cap funds make up the majority of the size of the market. Large cap funds make up about two thirds of the market.
2.
If you're a mutual fund investor concerned about asset growth, what should you do?
Favor funds with low turnover rates. The less a fund trades, the lower its trading cost. Aggressive, fast-trading funds will only be hurt more by asset growth. And by avoiding all small-company funds, you're missing out on a large part of the market.
3.
Which type of fund tends to be the most threatened by asset growth?
High-turnover small-growth funds. Because large-cap stocks are more liquid and account for the lion's share of the market's value, funds that focus on such names tend to be less affected by size than smaller-cap-focused funds. Low-turnover funds incur lower trading costs and are more affected by asset growth than fast-trading ones.
4.
How do you calculate a fund's asset size?
Multiply the fund's net asset value by the number of shares outstanding. This is how you determine the asset size.
5.
What is not something funds typically do to handle asset growth?
Own fewer stocks. Funds can close or change their strategies when faced with too many assets, or the fund managers may hold cash or buy more stocks.
