Small Is Beautiful: 'Bond King' Expected Alpha and Assets Under Management

13 Pages Posted: 1 Oct 2014 Last revised: 27 Jan 2016

Date Written: September 30, 2014


Many fixed income investors allocate assets to funds managed by "bond kings" with the expectation of achieving significant market beating "alpha". The investment performance of "bond kings" reflects the intersection of 1) those perceived to be skilled at identifying and exploiting mispriced securities and 2) the availability of investment capital. Historically, the value-added, the alpha, of "bond kings" has declined as the availability of capital has increased. As an empirically observed historical rule of thumb, a doubling in "bond king" assets under management has been associated with a 10-20% decline in achieved alpha. As a result, historically a "bond king" with a smaller asset base has outperformed a "bond king" with a larger asset base. For investors seeking the possible beauty of "bond king" alpha, the trade-off between size and alpha suggests that small is beautiful.

Keywords: Bond king, Bill Gross, Jeffrey Gundlach, the usual suspects, the right amount of assets under management, alpha, the wisdom of crowds

JEL Classification: G10, G11, G12, G15, G28, E58, N20, G13, E44, Q11, Q41, Q14

Suggested Citation

Erb, Claude B., Small Is Beautiful: 'Bond King' Expected Alpha and Assets Under Management (September 30, 2014). Available at SSRN: or

Claude B. Erb (Contact Author)

TR ( email )

CA 90272
United States

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