Blockbuster funds: Do inflows really hurt returns?

Fitch Ratings looks at capacity

Fitch Ratings joined the debate on the issue of capacity last week with a special report looking at how size affects fund returns.

Perhaps unsurprisingly, the report's authors found that pushing capacity limits can be detrimental to the performance of active strategies, forcing them towards a "less selective investment style". The analysts found larger funds often have to hold higher cash balances than they would have done when they were smaller, as well as employing more derivatives to manage market exposure and meet potential redemption requests. But one finding was more unexpected: analysts found most "blockbuster" funds had not seen deteriorating performance due to their size, and some of the largest funds in...