For this question, we have to look at it in two parts. For actively managed funds , the bigger the better. There is a saying in the fund industry: size is the enemy of performance.
Generally speaking, the position adjustment time of a large-scale fund is longer, which has a greater impact on the positions of individual stocks, resulting in a decrease in the flexibility of the fund. Just like a car drives well doesn’t mean a truck drives well.
In addition, due to the “Double Ten” regulations of public funds : the same stock held by a fund shall not exceed 10% of the fund’s assets, and the same stock held by all funds under a fund company shall not exceed 10% of the market value of the stock. Therefore , the larger the fund size , the greater the restrictions on the fund manager ‘s shareholding.
Generally speaking, the size of actively managed funds is around 5 billion. For a few excellent stock- picking fund managers, some standards can be relaxed.
For passively managed index funds , bigger is better. Since index funds passively track the index and fund managers do not actively operate, fund managers should first consider the impact of large subscriptions or redemptions on the net worth . Therefore, the larger the scale, the smaller the impact on equity.
For example, an index fund with a scale of 100 million shares encountered the redemption of 20 million shares, which is equivalent to 20% of the fund size, and the liquidity pressure is relatively large. Moreover, the weighted index of stocks purchased by the fund has also undergone major changes, resulting in a larger tracking error. But when 20 million index funds with a size of 10 billion are redeemed , which is equivalent to 0.2% of the size of the redemption fund , the impact on the fund’s tracking index is much smaller.
It should also be reminded that this statement does not apply to enhanced index funds. Because, it is essentially an actively managed fund.
The size of the fund is not the bigger the better, but there is no doubt that the size of the fund cannot be too small. If the scale is too small, there is a risk of liquidation, and the choice of investment scope is not large. In addition, fixed costs such as information disclosure fees, audit fees, and legal fees are relatively high to be allocated to unit shares, so it is generally not recommended to purchase small-scale funds.