Question : Why is it bad for a mutual fund to have too many assets?
I keep reading on morningstar and other finance sites about how "such and such a mutual fund is getting too bloated with assets," and that this is especially a problem for funds that focus on small-cap stocks. And I see that Vanguard and many other companies have closed funds to new investors--even Vanguard's Windsor II, which focuses on huge corporations, has restricted new investors. Let's say a mutual fund purchases more that 50% of a company, why is that bad? Isn't that what Warren Buffet's Berkshire Hathaway does?
- asked by Yardbird
All Answers:
Answer #1
The more assets a mutual fund has the more I likeit. It means it will never go too high or too low.You don't want to gamble when it comes to mutualfunds. Gamble on a good stock in the market, or ona State of federal Bond Fund.
- answered by Kipper
Answer #2
First, you cannot purchase more than 10% of acompany's stock without stating your intent andfiling with the SEC. That may involve a hostiletakeover.I saw a list recently of the top 100largest mutual funds. I think the smallest on thatlist was $86 billion. Certainly you want todiversify, and it would be rare where a fundmanager would buy 10% of a company's stock, sowith $86 billion, it's hard to find enough goodcompanies worth investing in. The small Nasdaqstocks, don't have enough float (available shares)to make it worth this fund's time. If they canonly spend a few million, why waste their time?Even if the stock doubles in price, it will noteffect the bottom line of the fund significantly.
- answered by dredude52
Answer #3
Basically, the reason is that it becomes harder to"move the needle" as Warren Buffett says. Inother words, the more money a particular fund has,the larger any particular position has to be tomake an impact on the funds results. A $10million investment, no matter how well it doesisn't going to have much impact on a $50 billionfund. The larger the fund, the larger theinvestments needed to make a difference. Thelarger the minimum investment, the smaller numberof choices a particular fund manager has, andtheoretically, the less well he'll be able to do.
- answered by alan76543
Answer #4
Basic resons;A. It's not nimble enough to unwinda large position.B. Buying a position couldsiginificantly increase the price of the stock. C. Acts more like a S&P500 index (which usually haslower expenses.D. Harder to maintain it'scap-size (if it specializes in anything other thatlarge cap stocks).E. Runs out of ideas. Has topick many stocks that it might not have purchasedif it was smaller.
- answered by Common Sense
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