“Historically, a doubling in assets under management led to a 10-20% reduction in ‘alpha’,” he writes. “Naive extrapolation of the historical relationship between fund size and one year “alpha” suggests Bill Gross’ new ‘unconstrained’ bond fund could have an ‘alpha’ of about 10%.” Erb’s conclusion is in line with what most of us already assume. As AUM increases a fund manager has to both restrict himself to larger investments and move further down the list of ideas instead of only taking the very best. But there are two big reasons why you might want to pause before blindly following Bill...