Lipper: Fund Size Does Not Matter

January 6, 2004 ( - With the exception of small-cap mutual funds, the size of the investment portfolio has little, if any affect, on the performance of the fund.

Examining 12 different mutual fund investment styles, Lipper’s “Does Fund Size Affect Performance?” research report could not find any “statistical proof at either the 5% or 10% significance level” that the size of the mutual fund had an impact on the overall performance of the fund’s shares for the vast majority of funds studied.   The analysis examined mutual fund returns from 1997 to 2001, and measured outperformance based on the number of funds in a particular mutual fund category that bested their respective Lipper benchmark.

The only tangible proof Lipper could find was concentrated in four categories.   However, conclusions drawn on large cap growth funds between the size of the fund and overall performance were sketchy.   Where large cap growth funds showed strong results in the standard model Lipper developed, when the research firm delved deeper into the data, it found two other “equally descriptive models where fund size does not affect performance.”

With the large cap data not “entirely convincing,” Lipper concluded that only in small cap funds is there a link between the size of the investment portfolio and the overall fund’s performance.   Lipper attributed this phenomenon in large part to liquidity issues unique to small-cap funds.   However, this conclusion was drawn primarily from research conducted by outside researchers.

A copy of the full Lipper research can be found  here .