We've been singing this song for years: asset bloat is one of the leading causes of fund underperformance. But does anybody listen? Of course now that Mr. Big-Time-Bloomberg-Mutual-Fund-Columnist Chet Currier follows our lead , everybody will think it's a brilliant concept:
It's one thing to rack up nice returns when a strategy is new and the amount under management is small. The job may prove different after those early gains attract heaps of additional money from investors, and the fund that used to maneuver like a sports car comes more and more to resemble a dump truck.
'Asset bloat' is the term analysts at the Chicago firm of Morningstar Inc. use in their mutual-fund research.
'The worst effect of the asset bloat phenomenon is simple,' Morningstar says. 'The more money a fund has in it, the less nimble it becomes. If a fund's asset base increases too much, its character necessarily changes.'
Some fast-growing funds close to new investors to try to mitigate this effect. Others resist any such move, insisting they can handle the extra load.
Closings don't always solve the problem anyway, especially if a fund leaves its doors open to additional investments by retirement-plan members or to all clients of brokers and advisers who have existing accounts. The damage may not be immediately visible to the casual onlooker."
It would be great if some mutual fund research website would come up with a simple data point that would reveal how bloated with assets each mutual fund was. Call it a 'Fat Fund Index', if you will. Hey, we've been doing that since 1999!
MAXfund's Fat Fund Index lets you know if a fund is weighted down by its own heft. A FFI of 1 means a fund is lean a mean and will suffer no drag on performance because of asset bloat. A fund with an FFI of 5 is fatter than Homer Simpson and could suffer serious performance issues in the months ahead. You'll find each fund's Fat Fund Index on MAXfunds' recently redesigned data pages.
We've been singing this song for years: asset bloat is one of the leading causes of fund underperformance. But does anybody listen? Of course now that Mr. Big-Time-Bloomberg-Mutual-Fund-Columnist Chet Currier follows our lead , everybody will think it's a brilliant concept:
It's one thing to rack up nice returns when a strategy is new and the amount under management is small. The job may prove different after those early gains attract heaps of additional money from investors, and the fund that used to maneuver like a sports car comes more and more to resemble a dump truck.
'Asset bloat' is the term analysts at the Chicago firm of Morningstar Inc. use in their mutual-fund research.
'The worst effect of the asset bloat phenomenon is simple,' Morningstar says. 'The more money a fund has in it, the less nimble it becomes. If a fund's asset base increases too much, its character necessarily changes.'
Some fast-growing funds close to new investors to try to mitigate this effect. Others resist any such move, insisting they can handle the extra load.
Closings don't always solve the problem anyway, especially if a fund leaves its doors open to additional investments by retirement-plan members or to all clients of brokers and advisers who have existing accounts. The damage may not be immediately visible to the casual onlooker."
It would be great if some mutual fund research website would come up with a simple data point that would reveal how bloated with assets each mutual fund was. Call it a 'Fat Fund Index', if you will. Hey, we've been doing that since 1999!
MAXfund's Fat Fund Index lets you know if a fund is weighted down by its own heft. A FFI of 1 means a fund is lean a mean and will suffer no drag on performance because of asset bloat. A fund with an FFI of 5 is fatter than Homer Simpson and could suffer serious performance issues in the months ahead. You'll find each fund's Fat Fund Index on MAXfunds' recently redesigned data pages.