Mutual Fund Site

The idea that one mutual fund company can be better than another is not a new one. Because so many investors remain on edge after the market “correction” that took place in the last few years, deciding to jump in bed with a small cap fund is even more difficult than normal. And small cap funds, as we have discussed elsewhere on this site, are really not all that risky in terms of their long-term performance track records. So just imagine how people with the right risk tolerance might feel about investing in other types of mutual funds; likewise, how low risk investors will feel about Balanced Funds or Income funds.

Can Big Fund Companies Eliminate Risk?

While large mutual fund companies will have more assets under management than smaller companies, it does not necessarily mean they will eliminate risk better than small fund companies. This statement is supported by the following:

• it can be argued that smaller fund companies (based on assets under management) have “more” to lose than larger companies and will therefore take a more conservative approach to security selection.
• large mutual fund companies might have better access to top talent, but like all big companies they will be more heavily focused on their own bottom line profitability. This can translate in underpaying their talent or working with less progressive and astute analysts and managers.
• large mutual fund companies are often able to offer better incentives to the sales force; smaller companies will be restricted by their budgets.
• at the end of the day, both large and small companies worry about beating the index and their peers. Failure to do so will often result in cash outflows. Therefore, smaller mutual fund companies will be more sensitive and therefore more intent on making the right investment decisions.

So does it make sense to choose a Fidelity mutual fund over, say, an Adirondack fund?

Tough to say. The best performing Fidelity small cap value fund (which is unrated by Morningstar.com) actually under-performs against the top performing Adirondack small cap fund. Both funds have the same risk profile.

However, many people will find things with each fund that either works or does not work for them. Which makes the argument that choosing the best fund for your portfolio should really boil down to how well the fund, its management and performance compliment your own asset management strategy. Taken one step farther, the best mutual companies will be two different companies for two different investors. And, of course, this is why it is impossible to say, one way or another, whether bigger mutual fund companies are better or worse than smaller mutual fund companies.