Choose wisely. There is only one correct answer to each question.
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1.
Why can very large funds have difficulty buying very small stocks?
Because it's tough to put large dollar amounts to work in a small stock without affecting its share price. Small-cap stocks take up less than 10% of the U.S. market's overall assets; large caps, meanwhile, account for about two thirds of the U.S. market. It's therefore easier for a fund manager with a lot of assets to buy bigger companies than to own a small fry.
2.
Due to their sheer size, large funds tend to be the most threatened by asset growth.
False. Because large-cap stocks 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.
3.
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.
4.
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.
5.
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.
