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When big isn't better: should you sell mega funds?

by Emma Dunkley on Feb 13, 2013 at 07:00

When big isn't better: should you sell mega funds?

As a number of behemoth funds dominate and cross-overs in buy lists appear to grow, investors are increasingly facing the dilemma of how to approach capacity.

Can they continue to justify backing mega-sized funds, but equally can smaller funds cater for large scale volumes?

Neil Woodford’s popular £12 billion High Income and £9 billion Income funds were recently placed on the ‘sell’ list in Sanlam’s Income study, due to their size and focus on very large stocks in the market.

More pragmatic

The study said: ‘We would prefer managers who are able to be more pragmatic in the face of swiftly changing circumstances and therefore place sell recommendations here.’

While Woodford’s funds have been among the top performers over the long term and remain a favourite among wealth managers, size is still an issue for many investors.

‘We don’t invest in Woodford – the size of the funds is one of the reasons for that,’ said Peter Fitzgerald, co-head of multi-manager at Aviva Investors .

‘We prefer Artemis Income – it’s smaller, but by no means small. We have some capacity concerns [with Woodford’s funds], but it’s not the only reason. He has a very dogmatic style in terms of sector allocations, although some might say that’s proved right.’

Capacity an issue

Fitzgerald adds that capacity is a bigger issue for funds investing in small companies, where a large amount of assets can hinder the ability to invest.

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