Smaller funds are more effective at stockpicking and actively managing investments than larger funds...
Smaller funds are more effective at stockpicking and actively managing investments than larger funds, according to recent research from Standard & Poor's.
The report said among UK All Companies funds, the larger the portfolio becomes, the more likely it is to replicate the market as a whole, meaning investors looking for active, stockpicking funds may be paying over the odds for what appears to be closet index tracking. Smaller funds, on the other hand, can take advantage of opportunities large funds cannot enter into without ending up with a significant shareholding in the target security, the ratings agency said.
Managers need to ensure their investment approach is disciplined enough to stop the slide towards passive management as their fund size increases over time, Standard & Poor's noted.
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