Big is not necessarily bad when it comes to mutual funds and the returns they generate.

Fidelity Investments closed its $70 billion Magellan Fund to new investors last year as returns lagged and concerns arose that size was hurting its ability to perform as well as smaller, nimbler rivals.

But other large funds have remained open and demonstrated that big funds need not lag. For the first five months of the year, American Century's 20th Century Ultra Fund, a large-cap growth fund with $27 billion of assets under management, posted a 15.6% return.

Washington Mutual Investors, a value fund in the American Funds company, with $46 billion under management, had an 11% return over the same period.

Both funds slightly bested the average returns of funds with similar investment style, according to Morningstar Inc.

Large funds can perform well if there are fewer restrictions on the kinds of securities they can buy, said Burton Greenwald, a mutual fund consultant in Philadelphia.

"If the universe of potential securities is large enough, size doesn't become a restraining factor," Mr. Greenwald said.

Such is the case with the Ultra Fund, which holds stakes in businesses not traditionally considered to fall into the growth category, such as Ford Motor Co.

But Bruce Wimberly, who manages the fund, said diligent research is the real trick: "It still comes down to stock picking."

The fund has come up with enough ideas to stay fully invested-its cash position averages around 1%, Mr. Wimberly said. As long as the fund's managers can continue to find places to put the billions of dollars in investor assets, the fund should remain open, he said.

"The fund is big for a reason: Because the performance has been so good," he said.

Mutual funds cannot simply hoard all their money in a few robust stocks. Under the Investment Company Act of 1940, they may not hold more than 10% of any one company's outstanding shares.

And no more than 5% of a fund's assets may be used to buy stock in a particular company.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.