How do you pick a fund? Perhaps the one with the best performance, or the one attracting the most assets. But according to research from investment consultant Towers Watson, size and past performance can lead you astray.

A Towers Watson report, "Assessing investment skill in equity managers", examines the problem of picking the right fund. By tracking one of the largest mutual funds in the US over the past 40 years, Towers Watson discovered that, the larger the fund, the smaller the excess returns.