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Rating:Gross Goes Long as Shareholders Take to the Sidelines Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, October 14, 2011

Gross Goes Long as Shareholders Take to the Sidelines

News summary by MFWire's editors

Pimco's Bill Gross is not perfect after all, and reporters are noticing. Most prominently, the WSJ claims that Gross' throne is now "wobbling". Those wobbles were the fodder for a number of news articles Friday morning.

The wobbles are the direct result of declining performance in Gross' most famous fund. So far this year Pimco Total Return [see profile] (PTTRX) has trailed more than 90 percent of its peers, according to Morningstar.

That weak performance has caused shareholders to stop adding assets to the fund. Inflows year-to-date have slowed to just $183.5 million from $17.6 billion in 2010 over the same period. The drop off in flows and performance are a challenge to Pimco which took hold of its distribution from Allianz over the past year.

In response, the star PM is shaking up his portfolio. Gross increased the fund's portfolio duration, making a bet on a sustained period of low interest rates. He also upped the giant fund's exposure to mortgage-backed securities and to assets from outside the U.S.

Barron's, MarketWatch's "Fundmastery Blog", Pragmatic Capitalism and Reuters all also covered Gross' portfolio shift.

Gross' Total Return Fund has returned only 1.05 percent year-to-date, compared to 5.67 percent for his benchmark.

Meanwhile, over the past six months Gross has swung from one end of the duration extreme to the other, from an average duration of 3.6 years, about two years shorter than the index (and thus the bottom duration permissible), to 7.14 years now, about two years longer than the index (and thus the maximum duration permissible). 

Correction: A previous version of this story reversed the recent change in the Total Return Fund's duration. Bill Gross made a bet on sustained low interest rates by increasing, not decreasing, the fund's average duration. The article has been updated accordingly.

Edited by: Neil Anderson, Managing Editor


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