Young Fundpicker: Is big beautiful for funds?

Liquidity and deviations from the process

clock • 5 min read
Scott Thompson, senior analyst at Morningstar
Image:

Scott Thompson, senior analyst at Morningstar

Investors often ask fund pickers for their hidden gem picks or up and coming fund choices, but is this always the best place to find value? Should investors follow the crowd and buy big funds or are their best returns behind them?

Larger funds are often overlooked for a number of reasons, including liquidity, process and active share concerns. Liquidity and deviations from the process are undeniably factors that should make investors wary, with liquidity most obvious to investors when there is a mismatch. The obvious recent example being the Woodford Equity Income fund. The issues however are not necessarily when a fund is growing, but in fact the opposite, as the need to liquidate stocks when a fund is underperforming and receiving a high volume of redemption requests, may be problematic. Identifying deviation...

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