Course 503: Where and Why Asset Size Matters
Asset Size and Market Cap
In this course
1 Introduction
2 Asset Size and Market Cap
3 Asset Size and Turnover
4 How Funds Can Manage Asset Growth
5 How You Can Handle Asset Growth

A fund's asset size is simply the total amount of dollars invested in the fund at a certain point in time; it is the fund's NAV multiplied by the number of shares outstanding. Most funds report their assets monthly; the net asset figures on Morningstar's Fund Reports are usually as of the most recent month end.

There's no direct relationship between a fund's size and the size of the companies in which it invests. A fund with a $10 billion asset base, for example, doesn't necessarily own large-cap companies with $10 billion market capitalizations. It can buy stocks of any size-theoretically, at least.

We say "theoretically" because very large funds may have difficulty buying very small stocks. It's tough to put large dollar amounts to work in a small market. Small-cap stocks take up less than 10% of the U.S. market's overall assets; large caps, meanwhile, account for about two thirds of the market. In other words, in terms of number, large-cap stocks are a small part of the market (as you know, there just aren't an unlimited number of GE-size firms). In terms of market cap, though, they dominate. It's therefore easier for a fund manager with a lot of assets to buy bigger companies than to own a small fry.

Let's take an example. If Fidelity Contrafund, with $81 billion in assets in mid 2011, was really bullish on resort owner Gaylord Entertainment (GET) and wanted to make it a large part of its portfolio, it couldn't. The value of all of Gaylord Entertainment's shares combined is about $1.6 billion; if Contrafund could buy all of it-and legally it cannot-Gaylord would still make up just over 1% of the portfolio. A fund with fewer assets would have a much easier time loading up on these shares.

Next: Asset Size and Turnover >>


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