Bigger is usually better. Most people would prefer a rambling villa to a studio apartment. And everyone remembers the popularity of the Super Size meal at McDonald's MCD.

But as it turns out, the Super Size meal was a disaster for American health; McDonalds discontinued it in 2004. And super sized mutual funds can be just as troublesome. As hot shot funds grow, their returns often become sluggish, weighed down by too many assets. They lose their potency and become average. It happened to Fidelity Magellan FMAGX. Magellan is still a fine investment, but it's no longer the total-return powerhouse it was when it had less than a billion dollars under its belt.

Asset size can impede performance for any fund, but some types of funds are hurt more than others. It depends on a fund's style. (Note that bond funds don't typically struggle with asset growth. Individual corporate bonds may have less of an impact on performance as bond fund's assets grow, but in general the bond market is sufficiently large that asset growth doesn't hamper many bond fund managers.)

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