Academic Finds Small Funds Face Grinding Path to Achieve Performance

An academic from George Mason University writes in the Wall Street Journal that a large fund is likelier to perform better than a small fund on several counts. Professor Derek Horstmyer studied a range of actively managed funds over a five-year period and found that smaller funds had lower returns after taxes and a greater range of returns in the five-year period ending March 2019. Among several roadblocks smaller funds faced were increased tax consequences due to higher portfolio turnover. Overall, Horstmeyer found that “small-fund managers investing in domestic equity underperformed large-fund managers by 1.54 percentage points a year over the past five years.” The underperformance applied to both international equity and fixed income small funds.