As a follow-up to my post Researching Bridgeway Funds and BRSIX, I went ahead and opened an account with Bridgeway and bought $2,000 of BRSIX. I chose Bridgeway over other Micro-Cap alternatives for a variety of reasons.
First, after looking at the Micro-Cap ETFs, none of them were truly indexes either, as you really can’t be in this sector. They all have their own unique algorithm for choosing which stocks to hold, for better or worse. Also, since the ETFs are new it is unknown how they will react to large inflows or outflows of money as Micro-Caps are very volatile. These concerns are mentioned in this CBS MarketWatch article.
Second, I like that it is a mutual fund and that I can dollar cost average into it easily. And now that I’m “in”, I can continue to invest even if the fund closes to new investors in the future due to asset becoming too large.
I was also interested in the DFA US Micro Cap Portfolio Fund (DFSCX), but it’s only sold through designated advisors, and has a minimum initial investment of… $2,000,000!
Also from the MarketWatch article:
Academic research has shown adding small amounts of microcap exposure to a portfolio can reduce overall risk since they tend not to move in lockstep with the broad market. And despite their volatility, the market’s smallest stocks tend to dish out the fattest returns over longer periods, if investors can stomach the ups and downs.
This reminds me – this purchase is a buy-and-hold longterm decision. I am not looking for a quick flip, and will only sell to rebalance my portfolio. I haven’t quite figured out what percentage micro-caps should be in my portfolio, this was kind of a ‘let’s just do it and worry about the details later’ type of decision.
Finally, to balance out this decision I’m going to sell off at least some of my individual stocks. I’d much rather have money in this fund than a bunch of stocks I picked without thorough analysis.