Equity Fund Size and Growth

Implications for Performance and Selection

Abstract

Should individuals choose the largest or smallest equity jimisfor investment? This study explores the relationship of equityfind size to pe$ormance. Historical returns of largejiouis are found to be superior to their smaller peers. Yesterday’s best peforming funds tend to become to&y’s largestjkds as individuals invest heavily in response to the communications about the fund’s past success. But thefindings suggest that, once large, equity jimak do not outperform their peers. Especially for jima!s in aggressive growth objectives, the advantages of being small appear to outweigh the disadvantages. For individual investors wtih aggressive growth objectives, a strategy of investing in smallerjiouis may thus be wealth maximizing.