There has always been a fascinating debate over whether the size of a fund affects its performance? There are a lot of views on this but here are some interesting perspectives from the heads of Indian AMCs and advisors.
Does size impact alpha generation ability of a fund?#MutualFunds
— 🆃🅷🅴 🅼🅵 🅶🆄🆈 (@TheMFGuy1) March 13, 2019
It depends on the style; If a fund’s returns/alpha was generated on quick entry and exit and frequent trades, then smaller size helps. For a general Buy and Hold strategy, size is not a issue , but stock picks are.
— Anand Radhakrishnan (@Anand_1969) March 13, 2019
Precisely my point. Approaches determine efficacy of size. When growth in AUM comes from an unsustainable approach, then size becomes a challenge. If the approach is solid, size may not be a big drag.
— Shyam Sekhar (@shyamsek) March 13, 2019
I think more than size of growth the pace of growth is important too. If a fund is allowed to grow at a decent pace, and if one sticks to a consistent process, then a lot of good can happen
— swarup mohanty (@mohanty_swarup) March 13, 2019
Yes, makes it tougher due to impact cost. But contrarian style funds can do it IMO bcos they're not buying what everyone's buying.
— Aarati Krishnan (@AaratiKrishnan) March 13, 2019
broadly yes... every strategy / category has an optimal capacity... beyond which, you will see the impact of size.
— Radhika Gupta (@iRadhikaGupta) March 13, 2019
Echo that. Every strategy has an optimal capacity.
— Vetri Subramaniam (@VetriSmv) March 13, 2019
Funds in small and mid cap segments would get impacted with large sizes as impact costs are high
— Kalpen Parekh (@KalpenParekh) March 13, 2019
Empirically - the correlation otherwise is weak
There are large sized funds with good alpha and small sized funds with poor alpha
1. One cannot deny the decrease of flexibility in Fund Management as the size grows.
— swarup mohanty (@mohanty_swarup) March 13, 2019
2. Would be foolish to paint everyone with one brush!