How Size Factors Into Your Fund Strategy

Volatility and return are two factors every investor should keep an eye on. If the goal is to maximize return, you must, of course, expose your portfolio to some amount of volatility. But how do you determine the proper amount?

Several years ago, I worked briefly for Fisher Investments. During my time there, I learned a lot about how one part of the market can serve as a proxy for another. I also came to see that in many ways, a diversified portfolio is simply a blend of different ingredients designed to create the desired portfolio characteristics and returns.

I discussed this proxy relationship in noting that the First Trust IPOX 100(FPX Quote) might be a good way to capture small-cap growth. ...