Is Big Bad?

June 1998
Journal of Financial Planning;Jun98, Vol. 11 Issue 3, p16
Academic Journal
This article presents the results of a study conducted by Morningstar regarding the dramatic growth of mutual funds in recent years, as of June 1998. Morningstar particularly points to growth-oriented funds, and not just small-company funds that grow too big for their britches. Morningstar found that big funds with a lot of money to throw at growth-oriented stocks tend to pay top dollar for those shares by the very act of buying significant stakes in those companies. On the other hand, value-oriented funds buying significant stakes in unpopular stocks do not drive up the price of those stocks just by the very act of buying. Thus, they can buy low and then make their money when the value of a stock rises. When buying growth-oriented funds, try to find ones with a smaller asset base. The study also found that bigger funds, regardless of style orientation, tend to be riskier, though Morningstar had no sure explanation of why this is the case.


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