Does size matter for mutual funds?

When funds get successful, they start receiving more money from investors. Therein lies the challenge. As counterintuitive as it may seem, when funds grow, it becomes trickier for fund managers to find winning stocks and generate alpha. But does this mean an increase in fund size negatively affects the fund's performance on a relative basis? Here's what we found. Our methodology We considered the quarterly data of only those funds with three years of information. To keep things simple, we tested three different categories of funds: large-caps, mid-caps and small-caps. Our findings The majority of the funds across all the categories showed either no correlation or low correlation between their relative size and relative performance in the subsequent periods. Before you look at the data table below, let us explain what we mean by different correlations. 'No correlation ' means the fund has performed well or poorly, irrespective of its size. In other words, the fund's performan

This article was originally published on July 18, 2023.