Bloat ratio
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Bloat ratio is a concept developed by Russ Kinnel of the Morningstar, Inc. investment research firm. It is a mathematical ratio used to determine if a fund is getting too big to be beneficial to the investor. When you run a large fund, you don't just buy a few shares when the market moves, you can practically purchase such a big piece of the market that you can't buy low and sell high or buy high and sell higher. Therefore, when you buy "the market" - the price goes through the roof, and when you sell - it hits the floor. How can the fund make money doing that? They can't - not as much at least. To apply the formula, multiply the "funds turnover ratio" by the average trading daily value for the fund's top 25 holdings. The higher the product, the harder it will be for the fund to get out of its holdings.
If a fund has a high bloat ratio doesn't mean the fund should be ruled out. Just like many other factor that going into finding if the fund makes a good investment. However, statistically speaking, funds with a higher bloat ratio do tend to underperform those who do not, if everything else is the same.
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