M&G Optimal Income, Standard Life Investments GARS and Fundsmith Equity are among the biggest unit trusts and OEICs in the Investment Association universe. But what does this mean for those invested in them? Lauren Mason finds out
One of the most basic pieces of information on every fund's factsheet is its assets under management (AUM), but deciding whether the fund is a 'good size' or not can be a moot point.
If a fund is too small, the cost of running it can eat into returns while, if a fund is too large, it can lose flexibility and liquidity.
According to our research using FE data, out of 3,239 unit trusts and OEICs sitting in the major equity, fixed interest and multi-asset sectors (including IA Unclassified), 319 (or 9.8%) are more than £1bn in size. At the other end of the scale, 1,230 (or 38%) are less than £100m, despite recent pressures for groups to rationalise fund ranges.
Simon Evan-Cook, senior investment manager at Premier Asset Management, said deciding on the right size for a fund
"For any given fund, it depends on a host of different factors such as asset class, market-cap focus and the manager's investment style," he said.
Ryan Hughes, head of active portfolios at AJ Bell, said a large AUM could be detrimental to mid- and small-cap equity funds, for example, because they become unable to get exposure to the stocks they want, in the quantity needed.
"It is also possible that large AUMs can be challenging for fixed interest," he added. "This is because those funds end up becoming more and more invested in synthetic bonds or derivatives as they are unable to get sufficient quantities of the bonds they want to buy."
Effect on performance
So what impact has increasing fund size had on performance? The biggest strategy on the list is Richard Woolnough's M&G Optimal Income fund which, despite its £22.3bn AUM, has outperformed its average peer in the IA Sterling Strategic Bond sector over one, three, five and ten years.
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In fact, out of the eight actively-managed funds on the list with five-year track records, and which sit in single asset class sectors, six have beaten their sector averages over this time frame.
We also included Stewart Investors Asia Pacific Leaders in the table (below) because, even though the fund resides in the IA Specialist sector, its performance is easily benchmarked against the MSCI AC Asia Pacific ex Japan index.