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.
Hughes agreed with Lowcock that M&G Optimal Income could struggle if it saw significant increases from here, particularly if it wanted to make large allocations to the more illiquid end of the fixed interest market.
In response, a spokesperson from M&G said: "We closely monitor market conditions and market liquidity, as well as perform regular analysis on the structure and liquidity of the portfolios.
"The M&G Optimal Income fund can invest in a broad range of fixed income assets and geographies. The fixed income universe it invests in is vast and the fund has substantial flexibility in actively managing the fund's duration and credit risk."
In terms of Fundsmith, Hughes pointed out the firm has launched a new investment trust so it can buy companies that are a little too small to be held in Fundsmith Equity.
"On the basis that Fundsmith has already made it clear that assets are having an impact on the types of companies that it can invest in, this is probably the fund to keep an eye on if you had to choose one," he said.
Terry Smith, CEO of Fundsmith Equity, explained the average size of the company Fundsmith Equity holds is £100bn.
"With 27 companies currently in the portfolio, that means if we had just 1% on average of our portfolio companies, we would have a £27bn fund, and 1% is not exactly an illiquid holding."
Magic formula
Generally speaking, there does not seem to be a magic formula when it comes to finding the fund with the perfect AUM.
However, there are ways to mitigate being caught out. Evan-Cook believes it is vital to ask the fund manager what their maximum capacity is before investing, usually at a point when the fund is still small.
"We ask them then because you tend to get a different answer to the one you get when the fund has performed well and the assets are flooding in," he said. "The temptation to keep taking money can be too much to resist by then."
