Is Bigger Better? Analysis Of Funds’ Size And Performance

Overview: When a gold-medalist gymnast gained four pounds one week prior to the Olympics games in Sydney, her coach immediately delisted her from the team. Despite her constant pleas, the coach simply told her that the new added weight would hamper her performance. She repeatedly assured him that she would be able to perform just as well, because her skills and experience matter, not her size. His reply was, “Your size is your biggest skill!” In the mutual fund world, the dispute over how a fund’s size affects performance has been the center of many debates. For many years, fund experts asserted that large funds are often limited by their growing asset base from maintaining the same level of performance levels they achieved before. “The larger a fund becomes, the more difficult it is to manage.” The question arises that does size really matter. Sure it does. However, it is hard to determine to which degree size affects performance, since it is virtually impossible to isolate and account for all the factors that contribute to performance before and after a fund gets big. Not to mention that there is no clear definition of when a fund is actually considered big. So the question rather becomes: have big funds been able to perform better than smaller funds? The result in the article shows that smaller funds are able to navigate easily and quickly during downturns and over shorter times. However, without a doubt, over the long run, bigger funds steal the crown, outperforming their smaller counterparts. It is safe to conclude that these big funds are indeed well worth their size.

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Format: HTML | Date: Jan 2003 | Pages: 1