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Bill Gross has been navigating the fixed income universe for over 40 years, throughout that time he’s won a hard earned reputation for generating top-tier returns for his investors.
But recently he’s hit a bit of a rough patch. PIMCO’s Total Return fund, the world’s largest mutual fund, has been hemorrhaging assets, with investors removing some $26 billion out of the fund in the last four months. Total Return has lost a further $15 billion as a result of Gross investment strategy.
So has Gross lost his mojo? Suzanne McGee from the Fiscal Times says not.
“The problem – if there is one – may be much simpler: a mismatch between the kind of consistent outperformance that investors want and Gross’s view of the market and the emerging realities.”
What Suzanne is saying, is that Gross’s investment outlook is now and always has been, long-term in nature. (He is the Warren Buffett of fixed income, if you will) That comes in direct contrast to some investors, who have a short-term outlook and expect returns today.
The thirty year bond bull run has come to an end, Gross’s challenge is to ensure PIMCO funds continue to deliver for the next thirty years. PIMCO Total Return has over $251 billion AUM, transitioning a portfolio of that size is no small task.
Has Bill Gross lost his mojo, ask me again in 30 years!
Todays Other Top Stories
SL Advisors: – The problem with “rising rate” strategies. – In recent weeks I’ve heard quite a few people comment that they’re looking for “rising rate strategies”. It’s a seductive concept; interest rates are almost assuredly headed higher. The debate about tapering rages on, and clearly the bull market in bonds is over. Serial Quantitative Easing will transform to the Fed’s exit strategy from its $3.5 trillion balance sheet. Unfortunately, it’s not that simple.
Learn Bonds: – This 6% yielding security is worth a look. – If you are looking to build a diversified income stream that includes exposure to the utilities sector, Duke Energy’s DUKH bond is worth considering.
WSJ: – A return to emerging-market debt. – Russia and South Africa issued bonds in the biggest sale of emerging-market government debt this year, a sign that many investors remain interested in developing economies even after months of turmoil.
MoneyWatch: – How safe is PIMCO’s giant bond fund? – When it comes to bonds, risk and return are linked. The higher PIMCO return comes from taking on more credit risk. Although the PIMCO fund still looks like a good investment, never forget that the fixed income part of your portfolio needs to be your shock absorber when things get bad with stocks. Though both the PIMCO and Vanguard funds served that role well in 2008, it’s less clear whether PIMCO would come out as well in a repeat scenario.
BusinessWeek: – Professor who helped pop junk bubble says trace slows trade. – The decade-old system of publicly reporting U.S. corporate bond transactions reduced trading while cutting price volatility in the $4.2 trillion-a-year market, according to the Massachusetts Institute of Technology and Harvard University.
Market Realist: – Increased high yield rates in August mean higher interest expense. – Higher corporate credit yields mean more expensive borrowing rates for companies, so higher yields are generally negative for companies—especially those with high funding needs, including many upstream energy producers. These needs might include expensive capital expenditure (spending and investment) programs, acquisitions, and refinancing of debt coming due. Inversely, lower yields benefit companies, as they result in lower borrowing costs.
About.com: – The best performing high yield bond ETFs, year-to-date 2013. – High yield bonds have outperformed the rest of the bond market by a wide margin in 2013 thanks to the rising stock market, improving economic growth, and the lower level of interest-rate sensitivity inherent in the asset class. So far this year, the two largest bond ETFs have delivered total returns of 0.93% and 0.67%, respectively, compared to losses of about 3.3% for funds designed to track the investment-grade Barclays Aggregate Bond Index.
John Dowdee: – Assessing PIMCO funds for retirement income. – I have received several comments from retirees inquiring as to which PIMCO offering is better: mutual funds or CEFs. PIMCO’s wide array of different funds provides a unique opportunity to compare mutual funds against CEFs with similar investment objectives. This article will review several PIMCO funds and assess their risk-adjusted returns over multiple time frames.
Research Puzzle Pix: – What happens when rates rise. – Rates have risen some 100 bp. How would markets react to another 100bp?
ETF Trends: – Muni bond ETFs: Puerto Rico in perspective. – It is not a foregone conclusion that Puerto Rico will go down the same path as that of Detroit.
The Telegraph: – New bond pays investors 7pc in cash – or 10pc in wine. – Naked Wines, a firm that sources wines from independent producers around the world, is seeking to raise between £1m and £3m by issuing three-year bonds to customers and other investors.
Financial Post: – Cash king in the short term, says National Bank ETF strategist. – The time for capital preservation is now due to the threat of weaker U.S. stock prices over the next few weeks, says Pat Cheifalo, ETF strategist at National Bank Financial in Montreal.
Huffpost: – Surviving the bond exodus. – Are we at the beginning of a Bond Exodus? If so, how do we keep from being crushed? For answers, I turned to bond expert, Kathy Jones, Vice President, Fixed Income Strategist, Schwab Center for Financial Research.
Reuters: – Investors cut longer-dated Treasuries after job data. – Investors trimmed their holdings of longer-dated Treasuries in the latest week after a disappointing U.S. jobs report failed to alter expectations the Federal Reserve would pare its bond purchases next week, according to a survey released on Tuesday by J.P. Morgan Securities.
Reuters: – Puerto Rico cuts 2013 planned debt sale after bond sell-off. – A day after a Puerto Rico bond sell-off pushed yields above 10 percent, the Government Development Bank said on Tuesday it is planning to scale back bond sales planned for the rest of 2013.
Income Investing: – BlackRock: Core bond strategies doomed to losses. – BlackRock‘s chief fixed-income investment strategist, Jeffrey Rosenberg thinks it will be hard at this point for core bond strategies to avoid what would be just their third annual loss in the past 33 years, as measured by the Barclays Aggregate Index.
there is some serious buying going on in the municipal bond market right now – perhaps some fear being on the wrong side of the (non) taper?
— Michael Pietronico (@MillerTabak) September 10, 2013
#Muni mutual fund outflows 23 of last 25 weeks; $34 bill YTD, $1.5 bill last week not too bad.
— Fixedology (@Fixedology) September 10, 2013
@blackrock: High-quality munibonds offer TE yields ~ 8%, a compelling proposition for investors able to stomach the near-term volatility.
— Cate Long (@cate_long) September 10, 2013