# Help Me Find a Mutual Fund
**URL:** https://boards.straightdope.com/t/help-me-find-a-mutual-fund/161108
**Category:** Factual Questions
**Created:** [March 13, 2003, 3:23pm UTC](https://boards.straightdope.com/t/help-me-find-a-mutual-fund/161108 "2003-03-13T15:23:28Z")
**Posts on this page:** 2
**Page:** 1
### Author:  [@culture](https://boards.straightdope.com/u/culture)
#### Post date: [March 13, 2003, 3:23pm UTC](https://boards.straightdope.com/t/help-me-find-a-mutual-fund/161108/1 "2003-03-13T15:23:28Z")
I am a believer in index mutual funds (yes, I am very familiar with the pros and cons). However, one concern that I have is that I am missing out on most of the S&P 500. Since this index is size-weighted, the top 50 companies make up most of the index. Therefore, I am looking for an index fund that invests in the smallest 450 of the S&P 500 companies. Does such a beast exist? I would prefer with no load and no 12b-1 charges (as a matter of fact, I would insist on this criteria). The closest I have found is a Russell Midcap® Index fund (This does the smallest 800 of the largest 1000 companies)
I already have significant assets in the S&P 500 (large Cap), Russell 2000 (small cap) and Wilshire 4500 (medium and small cap but heavily weighted toward medium cap) indexes so don’t go there.
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### Author:  [@cynic](https://boards.straightdope.com/u/cynic)
#### Post date: [March 14, 2003, 7:09am UTC](https://boards.straightdope.com/t/help-me-find-a-mutual-fund/161108/2 "2003-03-14T07:09:49Z")
Good news / Bad news
Bad news first: I don’t know of any index that tracks the smallest 450 companies in the S&P 500, or of any index fund that tracks anything similar. I know that Rydex recently registered with the SEC for a new [Exchange-Traded Fund (ETF)](http://www.indexfunds.com/articles/20030130_S&Pewi_new_etf_ST.htm) designed to track an equal-weighted version of the S&P 500, but they have not yet said what the expense ratio will be, and I simply cannot determine whether or not that would be a viable alternative without knowing the costs involved. There’s also a mutual fund that tries to replicate an equal-weighted S&P 500, but I think it has a very high expense ratio, IIRC.
Now for the good news: You really don’t need to worry about this because you already have exposure to small-cap and large-cap stocks, and you can adjust the weightings of these asset classes in your portfolio to achieve the same risk/return characteristics as any hypothetical portfolio with an average market capitalization that falls in between those of small- and large-cap stocks.
The market is essentially efficient, in that it provides the appropriate risk-adjusted expected returns for large-cap socks, small-cap stocks, and everything in between. Small-caps carry high risk/high expected return, large-caps have a somewhat lower risk/lower expected return, and mid caps are somewhere in between.
If this is for a taxable account, a mid-cap index fund would be highly tax-inefficient, as stocks that are large-to-mid or mid-to-small are constantly being shifted in and out of the index, generating transaction costs as well as a taxable event each time.
If this is for a tax-deferred account, it’s better to skip mid-caps altogether and hold a combination of large- and small-caps. This way you get what’s called a “rebalancing bonus” when you sell some of the better-performing (and now more expensive) asset class to buy some of the poorer-performing (and now cheaper) asset class.
If you compare rolling three-year returns, mid-caps almost always perform in between those of large- and small-caps. So if your time horizon is greater than three years, there’s no point to owning mid-caps, and if your time horizon is _less than_ three years, you shouldn’t be in equities to begin with.