Size matters in investing: Smaller can be better

by Michael Tarsala

Bond king Bill Gross shows that when it comes to investing, smaller can definitely be better.

As Investment News explains, the $800 million Pimco Total Return ETF (BOND) is up 300 bps versus the $258 bln Pimco Total Return Fund since the former launched to much fanfare at the beginning of March. The two were supposed to have very similar performance. And they don't.

The reason is simple: It's easier to be nimble and opportunistic in a smaller portfolio than it is a large one.

Size! It's one of the few advantages that small account holders can have over the big boys.

Warren Buffett said as much in 1999, lamenting that he could generate huge 50% returns if only he had less money to invest.

What he meant is that it can be hard to generate strong returns with large pots of money for two reasons:

One, the fastest-growing companies often are the small ones. But because they are so small, it's not worth the time for large accounts to do the research on them. Those stocks won't even move the needle in most large portfolios.

Second, small accounts make it easier to be opportunistic. It often takes many days -- and sometimes much longer -- for large account managers to accumulate positions. Smaller accounts have the luxury of building positions more quickly. And they can also be more opportunistic shoppers.

Small size, by the way, is an advantage in the majority of Covestor's 180 different investment models.

If you'd like to learn more or to simply talk about your investing goals, contact us. We like to talk!

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