As Warren Buffet sometimes complains, having a large amount of cash to deploy in a meaningful way gets harder as the size of your company increases. For Berkshire Hathaway, the choices are limited to stocks or companies with large capitalizations, since any sizable stock purchase of small or medium companies will drastically affect their share price.
Additionally, to make any acquisition worthwhile, top management team will need to purchase companies large enough to make an actual difference on flow-through earnings. Fortunately, smaller investors won’t have that problem, as there are many advantages to investing in funds from large mutual fund companies.
Longevity and Data
Sizeable mutual funds tend to have a long history, and will provide comprehensive historical data regarding their performance. You never see a very young mutual fund company with $50 billion in assets under management (AUM), and even so, their returns can be tied to a few lucky stock picks over a short period of time. Fund companies who have stood the test of time have been able to survive through the ups and downs of the market, recession or depression. These are the mutual funds that have built investment strategies for the long-term, or are at least flexible enough to change their course when needed. Moreover, strong performance demonstrated over decades offers stability and the potential for less variance.
Generally speaking, larger funds get the best deals and discounts, which they then pass on to investors. The largest mutual fund companies get charged lower commissions by brokers because they buy shares in bulk, or millions at a time, resulting in lower administrative fees. These administration costs are paid by shareholders or investors in the fund, so lower fees means higher returns.
Like everything else in life, the larger and more prestigious funds attract the best money managers. A mutual fund company’s ability to draw in and pay the top talent, from managers to analysts, plays a big part in whether investors want to put their money with the fund. The reputation, guidance, and special investment knowledge of a great money manager or advisor can offer stability, confidence and peace of mind, not to mention higher returns.
A Few Interesting Facts
- Total U.S. Net Assets in Mutual Funds: $11.6 Trillion
- Number of Households Owning Mutual Funds: 52.3 million
- Percentage of Households Owning Mutual Funds: 44%
- Median Mutual Fund Assets of Fund-Owning Households: $120,000
- Total U.S. Retirement Market Assets: $17.9 Trillion
1 The Vanguard Group 1725 Vanguard.com
2 Fidelity Investments 1715 Fidelity.com
3 American Funds Investment 1118 AmericanFunds.com
4 Barclays Global Investors 287 BarclaysGlobal.com
5 Franklin Templeton Investments 280 FranklinTempleton.com
6 PIMCO Funds 219 Pimco.com
7 T. Rowe Price Investment 192 TRowePrice.com
8 State Street Global Advisors 177 SSGA.com
9 OppenheimerFunds 130 OppenheimerFunds.com
10 Dodge & Cox 118 DodgeandCox.com
11 Columbia Funds Distributor 108 ColumbiaFunds.com
12 Legg Mason 98 LeggMason.com
13 BlackRock Funds 94 BlackRock.com
14 Dimensional Fund Advisors 88 DFAUS.com
15 Janus Capital Group 76 Janus.com
16 Alliance Fund Distributors 69 AllianceBernstein.com
17 JPMorgan Asset Management 63 JPMorgan.com
18 MFS Investment Management 63 MFS.com
19 Van Kampen Investments 61 VanKampen.com
20 American Century Investments 60 AmericanCentury.com
21 Putnam Investments 58 PutnamInv.com
22 GMO LLC 55 GMO.com
23 Davis Selected Advisers 52 DavisFunds.com
24 SEI Investments 51 SEIC.com
25 Dreyfus Corporation 49 Dreyfus.com