How Funds (and You) Can Manage Asset Growth

There are a few things funds can do to manage asset growth. First, they can close. Closed funds don't accept money from new investors, but they'll usually continue to take investments from current shareholders. Their asset bases may grow, but at a more moderate pace than when they were open. Some funds close to current investors, too, which means that even those who own the fund already can't contribute any more to it. But that's pretty rare.

What other funds do

More often than not, fund managers cope with huge asset bases by altering their strategies. Some will buy more stocks. Other funds will start buying larger stocks. Still others will hold cash, because they just can't find enough stocks to buy.

How you can handle asset growth

So what does all this mean for your portfolio? Well, you probably don't have to worry as much about your value funds getting too big. But keep an eye out for sluggish risk-adjusted performance from your fast-trading growth funds as their asset bases rise.

And if you want to be proactive, keep an eye out for strategy changes. If you bought a fund to fit a small-growth niche in your portfolio, you might not be happy if it starts buying midsize or even large-cap stocks. A fund with a big cash stake can throw off your own asset-allocation decisions. Even if a growing fund is thriving, asset growth may still mean problems.