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When big isn't better: should you sell mega funds?
by Emma Dunkley on Feb 13, 2013 at 07:00
‘I’m most worried about the Asia funds that are getting too big,’ said Sketch. ‘I don’t want to buy the same eight stocks in an expensive wrapper, but that’s where the money has to go.’
He adds that this also causes some strategies to veer towards larger stocks. David Coombs, head of funds selection at Rathbones, also highlights the potential conflicts of interest between asset gathering and investment returns. Large funds attract higher fee income for the asset management company and therefore create more of a business risk to the firm.
‘In this situation there can be pressure on a manager to take less risk, which may impact alpha generation and lead to mediocre performance.’
Likewise, a large fund means more underlying investors and investor meetings and potentially less time spent by the manager running the fund.
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