Is ‘Bigger’ ‘Better’ When It Comes To Mutual Funds?

Ulli Uncategorized 2 Comments

If you thought that Magellan was a behemoth of a mutual fund, think again. It just got dwarfed by the mother of all funds, American Funds Growth Fund of America, which weighs in at a hefty $165 billion in assets.

Normally, I wouldn’t even pay attention to this fund, since it has a front load of 5.75%, but an article at Motley Fool’s website made me wonder if this bloated condition might have an adverse effect on performance.

The article cites a number of amazing stats showing that this fund actually outperformed the S&P; 500 over a longer term basis. I did a quick 5-year comparison in the chart below and confirmed the findings.

Of course, the fund hasn’t always been this large, so looking at its past may not be as accurate for the present. Only time will tell.

What tickles me though is that there is currently a big debate going on as to the benefits of indexing vs. the use of actively managed mutual funds. This article sure is a feather in the cap for the folks who promote the actively managed funds, although the index people are trying very hard to come out on top.

I can tell you already that neither one is right, but I will be weighing in with more detailed opinions in future posts after finishing Larry Swedroe’s book on the subject.

Contact Ulli

Comments 2

  1. Ulli, I happen to be a Swedroe fan.

    I don’t know which book you’re currently reading but I credit his book “The Successful Investor Today” (2003) with helping to eliminate alot of the “clutter” that once existed in my investing mind.

    I believe that many investors, in particular the legions of investors that will be forced to fend for themselves due to the “retirement” of pensions, could greatly benefit from “Truth 14” in TSIT. It can help anyone who cares to “DIY” build a nicely diversified portfolio of index funds.

    And it would still be useful reading even if they are, and many of these investors will be, “hands-off” types.

    I don’t believe Swedroe would advocate a trend-tracking and sell-stopping exit strategy, opting instead for long-term buying and holding (hoping), but there’s no reason people like me can’t hybrid the two approaches and sleep at night.

    In my opinion…


  2. G.H.

    No, I am reading Larry Swedroe’s book “Winning Investment Strategy” and some of what he says makes my hair stand up.

    Essentially, he’s in favor of using index funds as opposed to actively managed mutual funds. I can agree with him on some of his points, but it’s a whole different story when he talks about bear markets.

    You got it exactly right with the last part of your comment. Why not use a hybrid approach and sleep at night. I will elaborate more on that in future posts.


Leave a Reply