Mutual Funds continue to disappoint me

When I invest in a mutual fund, I am basically saying that I would rather have an expert manage my funds and for that service, I will pay a percentage of my money. In this relationship, the investor is the employer and the customer. The expert (fund manager) is the employee and the service provider. But how many of us hold the expert accountable for underperformance? Do the fund manager consider it a job they are accountable for?

I invested in a bond fund (Birla Sun Life Income Plus) late last year. This is part of my emergency fund (rest of the emergency fund is in a Liquid fnd).

The YTD returns of this fund is -3.27%.

First, I asked the agent about this. No response. Of course, I didn't expect any. Agents generally consider their job to end once the NFO form and the cheque has been submitted and the commission has been obtained. Till the next NFO comes, the customer is off the mind.

So I asked the AMC why the returns are negative even though interest rates have gone down. (when interest rates go down, bond fund NAV goes up). I didn't get a satisfactory answer. I got a standard patronizing response. ("Bond fund returns depend on many factors. Be rest assured that our fund manager strive to maximize the returns by investing in to securities as per scheme objective"). The correspondence so far has been given below. I will update it as it progresses.

Anyone has any clue why bond fund returns have been negative off late? As a category, the YTD return has been negative.


Correspondence with Birla Sun Life

-----Original Message-----
From: S.Sarkar
Date: Friday, June 26, 2009 08:21 AM
To: birla mf (connect@birlasunlife.com)
Subject: Question on a fund I have invested in

Sir,

can you tell me why the NAV of 'Birla Sun Life Income Plus - Growth' is going down? The interest rate has been moving downwards. Still the NAV is going down.

regards,
Sumant



From: A_Connect
To: S.Sarkar
Sent: Sunday, June 28, 2009 2:03:56 AM
Subject: RE:'BSLFS=008-181-302' Question on a fund I have invested in

Dear Sumant,

We thank you for writing in to Birla Sun Life Mutual Fund.

With respect to your query, we would like to inform you that bond yield in the debt market decreases with the decrease in the interest rate in the market, which results in the decrease in the valuation of investment. (Comment from Sumant - fair enough. Bond interest may go down. But that no way explains why NAV would go down!)

However, the scheme NAV also depends on the various factors.

Further, please be rest assured that our fund manager strive to maximize the returns by investing in to securities as per scheme objective.

For any further information or assistance, please feel free to contact us between 9 a.m. & 9 p.m. from Monday to Saturday on our toll-free number 1-800-270-7000, or, on 022-6691 7777 (non toll-free). You may also visit our web-site www.birlasunlife.com

To avail of the bouquet of value added services we offer/ to request for an Account Statement/ to sign up for SMS/ Email alerts, please click on the links mentioned below:

Online Access registration || Statement on demand || Sign up for Services( SMS / Email alerts)|| To post your feedback || Branch list ||
We assure you best of our services and look forward to your continued patronage
Regards,
Mohd Shabbir Khan
Client Relations
Birla Sun Life AMC Ltd


----- Forwarded Message ----
From: S.Sarkar
To: A_Connect
Sent: Saturday, June 27, 2009 9:08:24 PM
Subject: Re: 'BSLFS=008-181-302' Question on a fund I have invested in

Thanks for replying.
First of all, whenever interest rates go down, the bond prices go up.
NAV should go up and not down.
The interest income may come down, but the returns should not become negative.
So I still don't know why the NAV has gone down.
As an investor, I have a right to ask the fund manager why returns are negative.

Moreover, if you see the YTD returns, Birla Sun Life Income Plus has returned -3.27%
But the category average is -0.83%.
Why has Birla Sun Life Income Plus lagged the category by such a huge margin?

regards,
Sumant

ActiveStatement - Nice online service from CAMS

This is a really good service from CAMS (Computer Age Management Services). If you have invested in mutual funds and provided an email address in the fund application, you can enter the email address here at the CAMS site. It will fetch ALL your fund portfolios and send you an encrypted & password protected statement covering all the funds. There's more.















Once you have received and opened the statement, it comes "alive". You can interact with it like it's an application. Provide inputs, make corrections, view information on your holdings.








































It even let's you do transactions (I haven't tried it yet). It's rare when the Indian financial services industry comes up with an innovative product that is useful for investors. So this definitely is a welcome change. This product is so good that if I were a regular mutual fund investor, I would pay to have access to it. It's possible that the product may become a paid product in the future. Or regulations may severely curtail its usefulness. So enjoy it for free till then. After that you can take a call if you would find it useful enough to pay for it.

Sometimes even prominent magazines get it wrong

Money Today magazine's current issue provides a list of mutual funds and their past performances. Here's a snapshot of a page:


In the column for price, the fund NAV is listed. What is the price of a fund ? Is it the NAV ? Most investors fail to grasp the meaning of a fund NAV. The absolute value of the NAV is of no consequence. It's just a notional figure. It certainly does not represent the cost of a fund. The cost of a fund is the annual expense ratio and the entry/exit loads. That is what should have been provided here. Sometimes I feel there's a conspiracy to keep the expense ratio under wraps. In the fund documents, it's buried deep somewhere and is hard to fund. Magazines don't talk about it as much as they should. Considering that such magazines are dependent on advertisement revenues from financial companies, it's not hard to see why.

The focus needs to be on the expense ratio

It's heartening to see the attempts to reduce the entry load for mutual funds. However, the thing that is more insidious is the annual expense ratio. Let's consider that 1 Lakh rupees is invested for my retirement which is 25 years away. Let's say I save the entry load by going direct. Consider a fund that makes 10% CAGR and has a 2% expense ratio. The investment grows to Rs. 6,53,840/-. Now assume I pay 2.25% entry load but the expense ratio is 1.5%. In this case the investment grows to Rs. 7,25,843/-. This is more than 11% higher than the earlier case. So it's clear that common investors are better served if the focus is on reducing the expense ratio. Compared to the western countries, Indian funds charge 2% or more in terms of expense ratio. Even index funds which don't have to hire a fund manager charge more than 1%. Retail investors should make a concerted effort to reduce the annual expense ratio charged by the mutual funds.

Life Lessons I wish I had earlier

1. Opportunities arrive from unexpected sources at unexpected times. So do threats.
2. Take care of health. Health is indeed wealth. Keep your weight low. Take care of the teeth and knees. They can cause immense pain later. Don’t develop tartar and cavities in the teeth.
3. In an organizational context, when in doubt on whether to reveal or not, reveal. Reiterate message/risks.
4. Dramatize. Don't be plain and boring.
5. Consult. Even if it is only to use people as a sounding board.
6. Genuinely value loyalty and reward it. But can't live off yesterday's achievements.
7. Take time outs to recharge batteries.
8. Balance experience and naivety.
9. Give second chances to people.
10. Don't compromise on integrity. Hard to live with yourself if you are not.
11. Flight and inaction can sometimes be the best response. Live to fight another day.
12. Be proactive. It saves a lot of time and resources and exploit opportunities.
13. Foresee and tackle problems early.
14. Be honest, forthright and upfront.
15. Life is not fair. Get over it. The world owes you nothing. You are not the centre of the universe.
16. Things change with time. You cannot predict the changes. Leap of faith is required in joint efforts (such as marriages, companies)
17. You can control or predict very little. Be flexible and prepared for opportunities and threats.
18. Have some good friends.
19. Praise people behind their back.
20. Do good to people whenever you can, without expecting or asking for payoffs (at least not immediate payoffs).
21. Anyone does anything because he has an incentive. Incentives are extremely powerful. Align them to achieve goals - individual goals and team goals. Eliminate conflict of interest.
22. Be slow to judge negatively.
23. Schedule some quiet time for yourself. Think. It's not easy. But take a step back and think - SWOT or whatever else.
24. Lower your and your community's carbon footprint. Reuse/Reduce/Recycle. Don't hoard. Rent rather than buy (unless it's a long term asset, in which case other factors apply).
25. All progress happens through advancements in sciences. Keep abreast of progress.
26. Don't fret boredom. All achievements are partly due to talent and partly due to persistence.
27. Learn new things/ideas/skills. Build new relationships. Keep existing relations warm.
28. People are important. Teams are important. Teamwork is important.
29. Never miss an opportunity to shut up. Self incriminating stuff are said when we try to fill the silences. Use silence as an effective negotiating tool.
30. Prioritize and work on the important things. Balance urgent with important.
31. Money is like air. We can't live without it. But we don't live for air, do we? Appeal to self-actualization to motivate others (after the basic needs have been met).
32. You cannot count on anyone but yourself.
33. Appreciate generously.
34. Don't walk into a room talking. You never know who is inside.
35. You don't gain respect by cracking racist/misogynist/sardarji jokes. Even if people laugh at it, they secretly look down upon you if you crack such jokes.
36. Never say anything behind a person what you won't say in front of him.
37. Don't spill secrets. Don't encourage others to. One who spills to you isn't your friend either.
38. Good old fashioned politeness never hurts. It's ok to open and hold doors for women.
39. Acquire offbeat skills. Exotic dance, a new language, whatever. It makes a huge difference in people's perception.
40. Mocking someone is a waste of breath.
41. Think many times before firing someone from a job.
42. If you feel hurt, express it.
43. When you are wronged by someone, don't bottle the anger. Don't get hysterical but express your anger and disappointment clearly. Don't tolerate anyone taking advantage of you.
44. The world tramples the weak and worships the strong.
45. People project themselves on to others. Don't ascribe motives to others based on your own nature.
46. It always seems to you that people are in control. Most of the time they are not.
47. Don't attribute to ill-will what can be attributed to incompetence.
48. We are selfish and self-obsessed. Accept it, embrace it. All human progress is motivated by so called vices such selfishness, laziness. Nothing wrong with that.
49. It may seem to you that everyone is watching you. The reality is people are bothered about themselves. They are concerned about how they look and not how you look.
50. Back yourself. Don't undersell. Your success and achievement are limited by not your wealth, caste, looks, skills, but your self-belief. You achieve what you think you will achieve. So think bigger.
51. Data driven decisions can only go so far. Don't get ensconced into complacency just because the decision is data driven. Black swan events are always a possibility.
52. Life is too short to be petty.
53. Mountaineers don't carry bricks in the backpack.
54. People tend to believe what is convenient to them. Examples of such beliefs are:
a. When a person makes a profit in the share market the gain is attributed to skill. A loss is attributed to bad luck, bad timing, evil corporates, evil big bulls, Harshad Mehta etc.
b. When a person doesn't get a job it is attributed to bad luck/ bad interviewer/whatever. But if he does get it, it is due to his ability/skills/experience/potential.
c. all terrorist incidents are sponsored by country x
55. Don't fall for "Everyone is doing it, it can't be wrong" trap blindly.
56. Don't wait for a 100% consensus.
57. People crave for leadership. They'll follow you if you make them believe you can provide leadership.
58. You always have to answer "What's in it for me?" before people do what you ask or follow your leadership.
59. Formal education isn't all that it is cracked up to be. Plenty of people have achieved success without it.
60. This too will pass. Nothing lasts forever.
61. Be conscious of "self talk". Your destiny is made by what you say to yourself in your head. Losers brood. Winners think and mind-talk themselves into success.
62. People rarely change views when someone tries to make them change views. People rarely believe they have erred in any way. Even Al Capone never thought he had committed a crime (though he had just shot a police officer dead who merely asked him for a driving license).
63. People regret much more about things they didn't do rather than what they did do.
64. No point being shy. People are self-absorbed anyway. They won't watch you.
65. If you exude self-confidence, people will take that at the face value and believe in your abilities.
66. People follow a simple heuristic - "looks good = is good". Taller and more beautiful earn more for the same job. You can't fight it. No one said life is fair. If you are aesthetically challenged, work around using skills and self-confidence. If you are gifted, milk it.
67. Some people are smart and will notice any attempt to hoodwink. Maintain integrity.
68. You cannot know in advance which initiatives will bear fruits. Work on many. If you keep doing the right things, something will click and bring results.
69. Avoid fraternization at work. Avoid cliques. Separate personal and work life.
70. Pick friends carefully. You are defined by the company you keep. Your outlook in life is also determined by the same.
71. Pick your enemies carefully. You mark the person as an equal when you pick an adversary. Learn to let go sometimes. Not every battle needs to be won. Not every argument needs to be won.
72. Listen. You learn more by listening than by talking.
73. Wealth creation can be done by (a) knowing your financial goals, risk capacity and risk apetitte (b) asset allocation (c) giving it time. Ignore noise created by TV channels, newspapers, magazines, tips from friends and brokers. Focus on asset allocation and passive Index based products. The odds of you or that star fund manager beating the market over a long period of time is extremely small.
74. Serious wealth needs exploiting a good leverage. Working as an employee or a professional means you leverage your time and skills. Being an entrepreneur means you leverage an idea/product/patent/others time and skills. The 2nd lever is a better one and scales more. Hence more wealth is created this way. The risk of failure from a lever is commensurate to its payoff.
75. It's easier to seek forgiveness than permission.
76. When you take a decision, be prepared to accept and live with all the consequences. You cannot cherry pick only the good results.
77. Your parents are probably the only ones who are truly happy at your success.
78. Most things in life are mixed bags – they have both pros and cons. You always have to weigh in both pros and cons and decide. A clear black or white case is rare.
79. When someone asks for your opinion or feedback, don't give it right away. You may feel flattered and blurt out immediately. Hold your tongue. A lot of times, when someone asks you for an opinion, he doesn't really want your opinion. He just wants someone to agree with his opinion. So ask some follow up and probing questions to ascertain the true intention.
80. You will never have enough time.
81. Plan but don’t take too long planning.

Equity Mutual Funds vs. Index based ETF

Ask my grandpa. He thinks of FDs and traditional Insurance policies as the only investment instruments. Looking at the historic data, equity is our best chance of earning inflation beating returns. We can create a better asset allocation plan by having a part of our assets in equity. Exactly what % of their assets should be in equity depends on the risk profile and the time horizon. We will be better off considering equity in addition to the existing FDs and insurance policies.

On the other extreme, many of us invest in individual stocks, either from the open market or through IPOs. Implicit in this kind of investing is our belief that the portfolio we create in this manner will do better than the general market. Otherwise, why will we take the pain & risks of individual stocks (the fact that we don't consciously think of this is a sign that we are being irrational).

Do we ask the question - what are the odds that I would beat the general market in a sustained manner ? How many of us work the numbers and evaluate the performance? After adjusting for taxes, brokerage and other expenses, did we beat the general market ? Most of us would be clueless on how to do this ? The right way to do this is to calculate the portfolio IRR over the extended period. In contrast, the most we do is to cherry pick specific stocks and time periods in an anecdotal manner. Useless bits such as "I bought this stock at X and sold at Y" get bandied about. What is required is the portfolio IRR over the complete time period, adjusted for expenses, taxes and risks.

Like the Greeks of the classical times, I know I don’t know anything! I have no qualms accepting that the odds are stacked against me and it's very unlikely that I will be the one whose portfolio will beat the general market.

I turned to equity mutual funds. After investing in them for nearly a decade, I stopped. No, I didn't stop investing in equity. Nor have I started picking individual stocks. I don't read "research" reports from brokerage firms. I don't watch CNBC and such TV channels. Nor do I lend ear to stock tips, internet message boards, newspaper/magazine recommendations and hearsays. The odds of anyone (including the financial "experts") beating the general market over a long period is low. Some fund manager may beat the market. But how do we know in advance who that will be?

To remove the risks of lagging the market risks - the most sensible thing to do is to invest in the Index. No stock picking, no churning, and no fund manager. There are a couple of ways we can invest in an Index. Mutual funds and ETFs. I prefer the latter option due to lower recurring costs.

After investing in equity mutual funds over a decade, I have come to the conclusion that it is good for those who would otherwise shun equity, or who would burn money in individual stocks following "tips". For people in these categories, even a low cost ULIP is a better option.But for others like me, Index based ETFs are a much superior option.

These are my gripes against the Mutual fund industry in India:

1. Systemic risk - the chances of a particular fund beating general market over a long time period is low. I don't like the risk of getting stuck with a laggard. (whenever I have mentioned this to my acquaintances, I usually get a response in the lines of "but fund XYZ has given a return better than the general market over 5/10 years!" To this my response is - sure, it has. First of all, how many have done so among all the funds out there? Don't forget to count all the funds which were killed off midway or merged into other funds. Take "survivorship bias" into account. Secondly, how can we know in advance which fund will beat the market over the next 10 years?)

2. Blatant portfolio churning. Mistaking activity for progress is a common human pitfall. We just don't like inactivity. So you see funds with 100% or more portfolio turnover in India. Most of us don't bother to look into this at all. It adds to the risks and costs. We think of such funds as "dynamic".

3. Fund manager turnover. Unlike the US, the "star fund manager" phenomenon isn't big in India. At least so far. But, for what they are worth, there needs to be stability in fund manager just so there's an accountability. If fund managers move from one AMC to another, they have no incentive to generate good returns. Their efforts are geared to increase the AUM (asset under management) so they can get a better remuneration. This is a complete conflict of interest.

4. The blatant quest for AUM is true for AMCs too. New Fund after new Fund is launched with the sole goal of increasing the AUM. There's hardly any real difference among them. It's so predictable. Whatever has taken investors fancy will be the theme of the new funds. And they come in droves. If infrastructure is the "hot" theme, you will see one AMC after another coming up with Infrastructure funds.

5. Distributors - The devils you can't do without. It's a fact that in India investments (as well as Insurance) are sold and not bought. There is a complete lack of education on personal finance aspects among Indians (can't blame us - thanks to half a century of socialism, most of us are new to the concept of personal finance - so far we did whatever option government gave us - it didn't need any education). So we need the distributors. I don't mind paying an entry load to distributors. But the trailing fee is not logical. If I invest now for 10 years (equity investments should have that or longer time frame), I'll pay a trailing commission even after 10 years to someone for a one time service. I don't mind paying an entry load to distributors if they provide me a real service. If all they do is peddle the latest NFO, ULIP, or whatever gives them the most commission, there's a clear conflict of interest. I am willing to pay a commission to someone who is qualified and takes the effort to study my financial situation, my goals and then recommends an investments. All we have now is a bunch of people certified by AMFI (a certification which has been totally gamed by distribution companies). I am NOT willing to pay any commission to such people. Thankfully, we now have the option of buying funds directly from the AMC. We save on the entry load as there is no commission to pay to any distributors. However, the trailing commissions, incentives, foreign holidays for distributors continue to come from the common fund pool. Over a long period of time, these recurring expenses are much more damaging to the fund's return than the initial one time entry load.
Distributors are essential to increase AUM. Fund companies know this and wield to the power of distributors. They pander to them. All innovation in the fund industry in India happens for the distributors' benefit. Most of the times, at the cost of retail investors.

6. Scheming by AMCs. Whenever SEBI comes up with a new rule that will help investors, the AMCs come up with a way to circumvent it. This is a worldwide phenomenon. The regulatory bodies such as SEBI do not pay very high salaries to employees, but AMCs do. So AMCs attract very bright MBAs. So it is quite expected that the AMCs will be one step ahead of the regulators. When SEBI barred charging initial expenses to the fund for open ended funds, each and every AMC came up with close ended funds. The average Indian investor doesn't understand the implication of open ended vs. close ended, he gets fooled easily.

7. Corporate money is pooled with retail money. Due to hunt for AUM, fund companies do not shy away from giving discount on NAVs or other incentives to corporate investors. Alas, this is at the cost of retail investors.

8. High annual expense ratio - It's appalling to see funds with 2+ % annual expense ratios. What justifies this ? In the west, active funds charge around 1%. With a handicap of 2+ % annual expense, the odds of it beating the market are even lower. Even Index mutual funds have 1% expense ratio. What for ?


So far I am happy with Index based ETFs. They have no fund manager risks and much lower annual expense ratio (0.5% or so). I invest in Benchmark's Nifty Bees. There are some other options too. The expense ratio can go lower. Vanguard ETFs in the US have an expense ratio of 0.1%. So we have some way to go, but it's not as horrendous as 2+ % by mutual funds. We cannot eliminate all the risks (what if Benchmark's Nifty Bees does a Satyam on us!). But looking at all the pros and cons, Index based ETFs are the right option for me and not equity mutual funds.

Importance of Asset allocation

Investing according to an Asset allocation plan and sticking to your plan is so hard when you are bombarded by noise from newspapers, loud TV channels, tips and "research" articles from brokerage houses, tips from friends and colleagues and of course, blogs such as this. So I thought I'll share some my asset allocation information.

This is at the beginning of 2008.














This is at the beginning of 2009.













The changes were mainly due to the 50% downward market movement. Also, it was a conscious decision to increase the commodity part to 4%. The real estate part increased not due to an appreciation of market value but due to outstanding principal going down as I paid off EMIs. I created a 4.5 Lakh emergency fund and that contributed to an increase of debt percentage. A good chunk of incremental investment goes into debt, whether I like or not (PF, Employee Superannuation, LIC policies).

The general market is down more than 50% and yet my networth has held almost steady. This cannot be explained by the incremental investment in the year 2008 as it represents only 10% of networth. It can be explained by simple principles of asset allocation and diversification.

Based on my risk profile and financial goals, I had decided to have 45-25-25-5 split among equity, debt, real estate, commodity. I would like a higher equity % and a lower real estate %. However, I have to take into consideration the large ticket sizes of real estate investments (in the absence of real estate mutual funds for retail investors in India) and the compulsory debt investments such as PF and Superannuation.

As my current asset allocation is far from my target, this is what I will working at. Increase the equity portion and decrease the debt portion. I won't be able to control the real estate part so much due to the large ticket size. So the future incremental investments will be skewed towards equity. Not that I haven't done so in 2008. But due the need of building an emergency fund and market conditions, the equity % went down.

The point is - we tend to take more logical decisions when they are based on our personal financial profile & asset allocation rather than the noise around us.

Insurance cover for Terrorism

Terrorism cover of 5 Lakhs cover for 99/- a year
http://click2insure.in/NewFightTerrorism.aspx

It's a group insurance policy from Oriental Insurance co. of India.
Do check the exclusions and the terms and conditions.

Purchase is online and you can generate and print the policy contract note.

This cover is no way a substitute for life insurance. A term life insurance of adequate cover should be taken. A term life insurance covers death by any reason, including terrorist incidents (well, it does exclude suicide in the first year).

Benchark ETF S&P CNX 500 Fund product

It's unlikely your financial adviser talked to you about the Benchark S&P CNX 500 Fund product. It has been launched recently.
Here's more on this:
http://www.benchmarkfunds.com/static/staticinfo.cgi?filename=spdownloads.htm
http://moneytoday.digitaltoday.in/index.php?option=com_content&task=view&issueid=683&id=4697&Itemid=1&sectionid=106
http://www.outlookmoney.com/olmnew/article.aspx?sid=2&cid=22&articleid=7114
http://www.valueresearchonline.com/story/h2_storyView.asp?str=12251

It's a complete market Index product, ideal for the equity part of your asset allocation. As it is an Open fund, it will be available for buying and selling just like any other fund. Watch for expense ratio and tracking error. Both should be extremely low (upto 0.5% can be tolerated)

Update on Jan 20th, 2008 - Thanks Sandeep for that.

Investing in Gold asset class

A portfolio should consist of diversified and uncorrelated assets. To that end, investing in gold (and commodities in general) should be part of portfolios of 10 years or longer duration. 5% of networth can be kept in this. (Of course a portfolio depends on many factors but here we are talking about the median portfolio).

How do we invest in gold ?
Indians have a voracious appetite for gold. In fact, Indians are probably THE largest consumer of gold. So it's odd to suggest to Indians to invest in gold.

The issue is Indians buy ornamental jewelery and there's a huge cost of acquisition/ownership with ornamental jewelery -
1. Making charges
2. Wastage
3. Taxes
4. Locker charge
This is akin to entry loads and expense ratios for mutual funds. I analyzed jewelery purchase from a leading place in Bangalore and the "entry load" is nearly 40%! This pales the entry loads of even many ULIPs! There's also a risk of theft, loss and impurity with jewelery purchases.

A much better option is to invest in Gold ETFs. An AMC pools in money from retail investors and keeps gold of certified purity. The entry load is just the brokerage (typically 0.25% to 0.75%). The annual expense ratio is about 1% and it certifies purity and insulates against theft and such losses.

Someone asked me about DSP BR World Gold Fund.
DSP BR World Gold Fund is a mutual fund that invests a part of its corpus in shares of companies involved in gold business such as mining.

The returns from this and Gold ETF are correlated but not exactly the same.

If the goal is to hedge portfolio risks by keeping a part of your assets in gold, Gold ETF is what you should invest in. It tracks gold prices better and has lower expense ratio. It also avoids company specific risks. I cannot think of a single reason for opting for DSP BR World Gold Fund
over Gold ETF.

There are two Gold ETFs available in India:
Benchmark Gold ETF
UTI Gold ETF

To choose between the two, consider the following:
1. Pedigree of the AMC
2. Expense ratio (lower, the better)
3. Asset size (larger, the better as it distributes the fixed costs over a bigger pool)