A surge in assets could have an unfavorable impact on the performance of a small-stock fund if it becomes too large to function effectively. And the fund could experience style drift if it is forced to start investing in bigger companies. Conversely, ongoing redemptions spell trouble for any fund. Watch out if a fund is rapidly losing assets because investors are jumping ship for some reason.
Sizable redemptions can force management to dump good stocks to raise cash.
If gains are realized, the fund could make an unusually high capital gains distribution, saddling those who hold shares in taxable accounts with a potentially large tax bill. Inc. All rights reserved.