123) Large NAV vs Small NAV. Which is Better?

123) Large vs Small Fund NAV. Which is Better?

Another very common question regarding which funds to choose.

Do note that Fund NAV means the amount or Size of the Unit Trust fund. 
Not to be confused with Large, Mid or Small Market Capitalization.
Market Capitalization is the Size of the Company Shares.

There are some who believed that smaller fund Net Asset Value (NAV) is better. Reason being the amount is small, so the fund manager can sell and buy faster. Not much amount to affect the stock price.

As you may know, when you start to sell a lot of stocks, the price will drop. More sellers will push the price down. The opposite is also true. When there are a lot of buyers, the stock price will go up. The buyers will keep pushing up the stock price to buy the stock.

This makes sense when there is a high trading volume within a short period. Also, the total number of available shares in the market can affect the demand and supply. If the number of shares is low, and there is a lot of buyer, the low number of shares will not be able to fulfill all the buyers. So, the price will go up to "encourage" more sellers.

There are differences when it comes to Unit Trust.
The fund had restrictions on the percentage of shares the fund can own. It is limited to 10% of the fund's NAV for one company. For example, if the fund NAV size is $100 Million, the fund can only use up to $10 Million to buy a particular company's shares.

Let's say a fund manager is interested to buy the shares of a company. The fund manager is not going to use the full 10% at one time to buy the company shares. The fund manager will slowly accumulate the shares of the company over a longer period. The fund manager may still buy and sell according to the market fluctuations.

Furthermore, a fund manager will select stocks that are more liquid. This means the company shares that are easily bought and sold. There are many transactions in buying and selling in any trading day. 

Let's do some comparison on 2 funds with different Total NAV.

Let's look at a sample comparison between 2 similar funds based as at 29 Sep 2017. Fund C (Blue line) had 2.59 Billion NAV and Fund D (Orange Line) had only 225 Million NAV. There is a difference of 2.36 Billion NAV. Both funds are classified as Equity Malaysia in the Lipper Classification. Both have similar fund objectives, but slightly different Benchmarks.

 

You will notice that both funds performance are almost the same for the last 5 years. 

From the Quarterly Fund Report ended on 29 Sep 2017, below is extracted from the performance table.

 

The Total Return for different period varies slightly only. For the 1-year period, fund D performed better than Fund C. However, for the 3-year and 5-year periods, Fund D performed less than fund C.

In conclusion, there are no big difference between large or small fund NAV. The fund performance are similar for similar fund objectives, country and asset allocation.

You may notice the fund performance differences are very clearly shown by different fund objectives. The more flexible the fund objectives, the more impact will be on the performance. This is because the fund manager has more flexibility and able to strategize the fund investment better.

A fund that can invest into more countries also has different fund performance. The fund manager can invest into countries that has higher economic growth. Invest into companies that has higher potential growth.

So, Diversify your Funds to have a more Balanced Investment Portfolio.