Sunday, January 21, 2007

Small Caps and Small Funds

Following up from the discussion about mutual fund costs, Friday's WSJ had an article about top performing small cap funds (pointed out to me by Rich Gates - sorry no link as it is subscription only - I read the hardcopy at the office - I subscribe online to Barrons but not the WSJ). This showed that not only have small cap stocks outperformed large cap stocks in recent years but many of the top-performing small cap stock mutual funds are very small in terms of assets under management. TFS Capital's own analysis showed something very similar. It is well known that large mutual funds can have a hard time in getting high returns compared to small funds. This is especially likely to be true if they try to invest in smaller stocks. These small funds tend to also often have high expense ratios. 2% of $50million say is only $1million and from that you have to pay all overheads and several salaries.

The only really large cap stock I own is Berkshire Hathaway. I was thinking about making a post about the market caps of each stock and funds under management of each mutual fund I own. The biggest mutual fund that I have shares in is the Hussman Strategic Growth Fund. But the size of some of my other mutual and closed end funds could be misleading as those are in some cases products of management firms that also have other similar products. For example, Colonial First State runs very similar funds, under retail, retirement (superannuation), and wholesale labels. These are really different share classes of a single fund. They also have direct institutional mandates that may well be managed in the same fund pools. So this was just getting too hard, when I started thinking about all this!

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