The top US stock mutual funds as ranked by size are also some of the most popular. Some analysts view this an advantage. These mutual funds can have a greater say with company management since they may own a relatively large percentage of a company’s stock. Large mutual funds can also achieve greater economies of scale and pass that savings on to their shareholders in the form of lower expenses.
However, other analysts question whether the biggest mutual funds are too big. Larger mutual funds must take on larger positions, or spread their investing dollars out over more individual investments. Larger investments take longer to establish, and more importantly, much longer to unwind. A huge mutual fund cannot just dump all of its holdings in a company without having a major negative impact on the stock price as its sells are executed. Likewise, spreading a mutual fund out over more investments means reaching deeper into the barrel of investing ideas and research. Instead of focusing on just the best ideas of the fund managers and fund analysts, big mutual funds take on additional positions in less beloved holdings.
Ironically, some of the largest US stock mutual funds are also some of mutual funds top performers, returning results in the top quartile of all mutual funds and beating their respective indexes. On the other hand, some of the biggest mutual funds are dogs, badly trailing their indexes and begging the question, why are they so big if they do so poorly. Others, like the Vanguard Total Market Stock Index fund don’t try and beat their benchmark index and are instead so large due to high volume in retirement plans like 401k and with individual investors in both their regular online mutual fund accounts and in their IRA accounts.
