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Bill Gross has a lot to worry about, his funds have seen persistent outflows over the past six months, largely brought about by the Fed taper shenanigans. Things have gotten so bad his Total Return Fund PTTRX was recently surpassed as the worlds largest mutual fund by the Vanguard Total Stock Market Index Fund VTSMX.
Is Gross bitter, not a bit of it. In fact he went on to praise Vanguards founder Jack Bogle, who was an early pioneer of index funds. Bogle belief is that actively managed funds underperform the index once all the management fees have been accounted for.
Gross writes about Bogle in this months investment outlook, saying: “He’s got a lot of investment common sense, recognizing decades ago that investment managers in composite couldn’t outperform the market.” This is all set against the backdrop of an investor movement toward passively managed funds and away from actively managed ones.
But Gross isn’t one to go down without a fight. He says “If monetary and fiscal policies cannot produce the real growth that markets are priced for (and they have not), then investors at the margin – astute active investors like PIMCO, Bridgewater and GMO – will begin to prefer the comforts of a less risk-oriented migration.”
Gross, it seems is confident that if the market continues as it has been doing, his strategy is the one that will ultimately have the upper hand. Saying “Overlevered economies and their financial markets must at some point pay a price, experience a haircut, and flush confident investors from the comfort of this Great Moderation Part II. We at PIMCO will prepare for that day while hopefully consistently beating Vanguard along the way.”
You can read the full investment outlook here.
Crains Detroit Business: – Detroit bankruptcy has surprising long-term implications for muni bond market. – The bankruptcy court’s Tuesday ruling that makes Detroit eligible to become the largest municipal bankruptcy in U.S. history is not likely to have a major impact on the muni bond market, but it certainly won’t help.
Detroit News: – Michigan plans first bond sale since Detroit bankruptcy filing. – For the first time since Detroit filed for Chapter 9 bankruptcy protection, the state of Michigan plans to sell $30 million of debt in general obligation bonds this week.
Detroit Free Press: – Detroit faces difficult path toward striking deals with creditors. – Now how long does it take for Detroit to reach a deal with creditors and claw its way out of bankruptcy? It’s likely to be easier getting into Chapter 9 than getting out.
CNBC: – Will investors lose interest in muni bonds? – John Miller, Nuveen Asset Management explains how Detroit’s bankruptcy will likely impact bondholders.
CNBC: – Is your muni bond safe? – CNBC’s Rick Santelli and Alexandra Lebenthal, Lebenthal and Company, share the impact bankruptcy has on municipal bonds in your city or state.
Bloomberg: – Illinois bonds rally after lawmakers pass pension measure. – Municipal bonds from Illinois rallied to a one-month high after lawmakers broke through decades of political gridlock to pass a measure addressing the nation’s worst-funded state pension system.
Michigan Radio: – Detroit’s bankruptcy & the municipal bond market. – The judge’s decision to let the city of Detroit pursue Chapter Nine bankruptcy protection could have an effect on the municipal bond market.
Investment Week: – Morgan Stanley’s outlook for munis in 2014 isn’t pretty. – This year has been tough for municipal bonds and unfortunately for investors, it’s going to get worse before it gets better, according to Morgan Stanley Research.
Huffpost: – Playing with fire. – There is ample discussion about the possible damage that may ensue as a result of the federal government’s inability to agree on budgets and debt ceiling increases. So far, the wrangling on Capitol Hill has contributed to some volatility in the capital markets but nothing as dire as the forecasts of some prognosticators. In fact, Treasury yields actually fell following a debt downgrade by Standard & Poor’s in August 2011.
SFGate: – Treasuries advance for first time in week as Fed purchases bonds. – Treasuries rose, pushing 10-year note yields down for the first time in a week, as the Federal Reserve made two purchases in its program to spur the economy by buying government debt.
WSJ: – Microsoft sells $8 billion of debt. – Microsoft Corp. sold $8 billion of debt in the largest combined dollar- and euro-denominated investment-grade corporate bond deal in more than a decade, according to data provider Dealogic.
Money News: – Fed taper may hurt corporates bonds more than mortgage securities, Morgan Stanley says. – Relative yields on U.S. corporate bonds may widen more than those on government-backed mortgage securities when the Federal Reserve tapers its debt buying, according to Morgan Stanley analysts.
Learn Bonds: – Weighing your high-yield bond options. – Last week we considered the current landscape for investment grade bonds, more specifically 10-year pieces of paper. While we discussed the fact that investment grade bonds provide relative capital safety for investors willing to hold to maturity, we also noted that the yields were certainly not eye-popping. In this day and age of low interest rates, investors wishing to achieve more robust returns need to invest in either longer maturity offerings or slide down the credit scale into high-yield bonds, otherwise affectionately known as “junk.”
ETF Trends: – New issuance not holding back this junk bond ETF. – European companies have been tapping the high-yield bond markets in a big way this year as banks in the region have been tight when it comes to lending.
What Investment: – Ignore indices and invest in high yield for bond market returns. – Differences in yields between nations in the same indices means that investors in government bonds should avoid investing passively, according to Nick Gartside, international chief investment officer of fixed income at JP Morgan Asset Management.
Market Realist: – Why high yield bond ETFs closed tighter on the month for November. – The continuing economic recovery led spreads on bonds to tighten in November. Spreads tend to move on a relative basis to each other, as opposed to an absolute basis. This relationship was in play in November, as the spreads tightened across all ratings buckets.
Trustnet: – Now is not the time to buy high yield, warns Sparks. – The head of US fixed income at Schroders says investors would be better off waiting for an inevitable correction in the asset class.
LPL Financial: – What does 2014 hold for bonds? – In 2014, portfolios are likely to enjoy more independence from policymakers than in 2013, when the markets and media seemed to obsess over policymakers’ actions both here and abroad. This could be seen throughout 2013, during the government shutdown and debt ceiling debacle, the Federal Reserve’s (Fed) mixed messages on tapering its aggressive bond-buying program, the bank bailout and elections in Europe, and the unprecedented government stimulus referred to as “Abenomics” in Japan, among many other examples.
Morningstar: – Bonds with an attractive income. – Bond yields may have fallen from their pre-credit crisis peak, but payouts remains above the historical average and can provide an attractive income.
MarketWatch: – Bank-loan funds needn’t be a speculative choice. – There has been something of a mania surrounding bank-loan funds in recent months. They enjoyed $54.3 billion of year-to-date net inflows through October, as investors increasingly (and desperately) have been seeking yield with interest-rate protection.
Gross: Can you solve a debt crisis with more debt? Only if it produces sufficient growth. So far – not good enough.
— PIMCO (@PIMCO) December 4, 2013
BBG reports that Morgan Stanley is predicting 2nd year of losses for #muniland. Would be first back to back losses since 1980's.
— Cate Long (@cate_long) December 4, 2013
The widening in Agency MBS the last few days has been brutal, just brutal. Current coupon to 10y swaps from 49bps to 64bps in a month
— David Schawel (@DavidSchawel) December 4, 2013