Read an article about how fund size (asset under management in mutual fund) affect performance. According to the paper relatively larger fund enjoy economic of scales in term of research and operations expenses, but the giant fund tends to attract attention from market observers who try to study holdings within the fund and infer manager's view and act on it. Also the information obtained may not outweight the costs of research and trading. The paper is published in mid 90s and the funds surveyed is from the 90s as well so we are not sure if technology and investment world have developed to the extent that the theory is no longer valid.
A quick look at the wiki profile of Magellan fund confirmed that size is a factor in the determinant of asset under management. Either investors shy away from it or management felt the need to shrink the fund. The assets under management is $50 billion when Jeffrey Vink left the fund in 1996, and ten years later the fund lost/shet $30 billion to arrive at $19 billion under Harry Lang's management. http://en.wikipedia.org/wiki/Magellan_Fund
Read an article about how fund size (asset under management in mutual fund) affect performance. According to the paper relatively larger fund enjoy economic of scales in term of research and operations expenses, but the giant fund tends to attract attention from market observers who try to study holdings within the fund and infer manager's view and act on it. Also the information obtained may not outweight the costs of research and trading. The paper is published in mid 90s and the funds surveyed is from the 90s as well so we are not sure if technology and investment world have developed to the extent that the theory is no longer valid.
ReplyDeleteA quick look at the wiki profile of Magellan fund confirmed that size is a factor in the determinant of asset under management. Either investors shy away from it or management felt the need to shrink the fund. The assets under management is $50 billion when Jeffrey Vink left the fund in 1996, and ten years later the fund lost/shet $30 billion to arrive at $19 billion under Harry Lang's management.
http://en.wikipedia.org/wiki/Magellan_Fund