According to Lipper Inc., a mutual fund tracking company based in New York, smaller funds (those with assets of $1 billion or less) performed better than large ones over the last three years, by more than 2 percent annually. Small funds have the ability to be more nimble and take advantage of opportunities faster than large funds can.
Smaller mutual funds can efficiently get in and out of a position without moving the price of the stock. If a small fund picks a few outstanding stocks, superior performance may result.
On the other hand, a large, actively managed fund may be just an expensive index fund. As funds grow in size, the correlation between their performance and the performance of the S&P 500 index increases. Thus, with a large fund you may be getting the results of an index fund without the cost efficiency and tax efficiency of an index fund.
