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Funds 503: Where and Why Asset Size Matters

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1.
Due to their sheer size, large funds tend to be the most threatened by asset growth.
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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.
2.
If you're a mutual fund investor concerned about asset growth, what should you do?
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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.
What is not something funds typically do to handle asset growth?
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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.
Once a fund closes, it does not take in any more investments from existing shareholders.
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False. Many funds do actually continue to take in new investments from their existing shareholders after they close.
5.
Why can very large funds have difficulty buying very small stocks?
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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.