Mutual funds have specific objectives that limit the investment choices that fund managers can make. Essentially, the fund manager must adhere to the mandate of the fund, no matter what market conditions prevail. If the fund manager believes there are better investment opportunities in other countries, sectors, or different size firms at a given time, he/she may be unable to shift the portfolio to benefit the client. Wrap plans face a similar disadvantage in that historical static asset allocation models are used to make portfolio decisions. Portfolios managed under wrap programs often do not get adjusted to changing economic conditions if or when needed.

Due to the large total dollars invested in a mutual fund, a fund manager typically must avoid smaller companies (in terms of market capitalization) because smaller companies have poor liquidity. The smaller companies historically are the highest performing sector of the market.