Analysis of Fund Performance versus Fund Size

For many years, we have observed (albeit without proper analysis) that the size of an unit trust fund (some refer to as total assets or net asset value) tend to have an impact on the performance of the fund. 

As per our general observation, the larger a fund becomes, the harder the fund will struggle to generate returns as compared to rivals funds that are smaller in side. 

However investors must also take note that performance of a fund is not entirely dependent on size of fund alone, but also must consider other factors such as the geography or sector a fund is investing in, the fund's investment strategy as well as the fund manager's expertise (just to name a few factors)

Now back to our analysis on "fund size versus fund performance".......

We begin our analysis by extracting data for the top 20 performing Equity funds in terms of 3 Yrs Annualized Returns (as of 9th June 2022) as well as the respective fund size. 

We then plot both the "Ratio of (%) Returns to Fund Size" versus "Fund Size" and managed to derive the following observations:

Observations

1. Out of the 20 funds, there are 2 funds which we deem as outlier and have been excluded from the graph above
2. The remaining 18 funds have 3 Yrs Annualised Returns ranging from 16.44% to 29.45% (which is pretty impressive!)
3. All remaining 18 funds clearly have fund size that are lesser than RM250 million
4. 15 out of 20 funds (75%) have fund size that are lesser than RM150 million
5. The Top 3 best performing funds averages 27.49% in terms of 3 Yrs Annualised Returns with average fund size of RM 71.57 million

Summary

Clearly, this analysis provides evidence that an investor should consider the size of a fund as part of the criteria of selecting a fund to invest in.

Recommendation

When to use smaller fund size criteria:

• When deciding between two or more funds that are equal within the same category, go for the fund with the smaller fund size. This allows an investor to find the best cut gems within existing gems
• Try to use the general guideline of not investing into funds that are larger than RM150 million in size. 

When NOT to use:

• Perform due dilligence to verify funds that fall under the "Feeder Fund" category, for the rule of using fund size is not applicable
• Do not use this criteria alone to select fund. 

Cheers and Happy Investing!

~Follow us on Facebook~