How Much Does Size Matter?

By Barbara Kiviat

Is bigger better? That's the hot debate in the world of--mutual funds. Some experts believe funds with fewer assets perform better, since managers can quickly buy and sell securities. Others say large funds, which have more resources for research and lower expense ratios, are best. Well, here's a conversation stopper: size doesn't matter. A new study by Andrew Clark, senior research analyst at fund tracker Lipper, finds that while small U.S. stock funds sometimes outperform large ones (and vice versa), the bursts of superior returns last only for short periods, then disappear and often aren't statistically relevant--that is, they could happen by chance. So you still need to evaluate a fund by risk-adjusted return, expense ratio and manager experience. --B.K.