Mutual Fund Asset Sizes

by Geri Terzo

A mutual fund's asset size is a defining feature in an investment portfolio. It can influence investment performance and a fund's future direction. A certain type of management style, investment strategy or asset class may be better equipped to handle soaring assets than others. Investors also pay fees based on the value of assets in a fund. If a mutual fund reaches a size that hurts performance, investors may be quick to change funds.

Performance

A mutual fund's asset size has the potential to weigh on portfolio performance, even for the largest of investment firms. Fidelity Investment's Magellan fund's asset size reached $110 billion in the year 2000, according to a 2011 article in "U.S. News and World Report." The fund was so large that performance began to trail other mutual funds with similar strategies and investors began withdrawing money. The asset size fell to $20 billion by 2005 and the investment strategy shifted.

Approach

Mutual fund company American Funds oversees an actively managed stock portfolio worth some $170 billion, according to the "U.S. News and World Report" article. As of June 2011, this mutual fund was the largest fund in its category. The fund is broken up and overseen by a number of different investment professionals at the firm. Despite the enormous asset size, performance in the portfolio was not expected to falter, according to the article.

Bond Funds

While escalating assets can hurt performance in certain equity funds, bond funds are less affected, according to Morningstar, a mutual funds ratings and analysis firm. Potential gains in one individual debt security might not be noticeable in a mutual fund with an inflated asset size. The sheer size of the bond industry is so large, however, that portfolio managers are able to navigate the markets, stick to a strategy and keep fund performance at acceptable levels.

Fees

Mutual fund investors are often charged fees that are based on the size of assets invested with the fund, according to Bankrate. An expense ratio is a percentage of the operating costs of the fund, which includes portfolio management, and the size of the assets that the investor has with the fund. This fee is deducted from the fund's total assets. The specific expense ratio that an investor is charged is outlined in mutual fund's prospectus. There may also be some upfront costs to begin investing in a fund.

About the Author

Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.

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