The financial media was all atwitter. Headlines screamed “Gross dumps Treasuries.” Many investors followed his advice and performed his suggested exorcism.Fast forward to August, 2011. Gross now admits dumping bonds was a “wrong call.” The U.S. economy grew more slowly than he anticipated, lowering the yield on Treasury bonds and causing the Total Return Fund to miss out on the rising market value of older fixed-rate Treasuries. Gross admitted his mistake, telling the Financial Times, “Do I wish I had more Treasuries? Yeah, that’s pretty obvious.”
Investors in the Pimco Total Return Fund have been impacted by this “mistake.” The Total Return Fund recently ranked 501 out of 589 bond funds in its category. It has underperformed its benchmark index by 1.26 percent year to date. Gross had this response to the inability of his fund to beat a simple index: “When you’re underperforming the index, you go home at night and cry in your beer… “It’s not fun, but who said this business should be fun. We’re too well paid to hang our heads and say boo hoo.”
Investors may not be so sanguine. It was a Gross miscalculation, illustrating the vagaries of active management. Even the best and the brightest (Gross has a stellar track record) can get it wrong. If you are relying on brokers and active managers to “beat the markets” and “add alpha,” you are gambling and not investing.
Do you truly believe there is someone out there that can predict the future? Even the most famous bond investor Bill Gross gets it wrong costing his clients dearly. The best approach for most if not all investors is to own a globally diversified portfolio with low cost funds.
Please comment or call to discuss how this can affect you and your future.
- US Bond Prices and Bill Gross: Pimco’s Gross Regrets ‘Mistake’ on US Debt Call (401kplanadvisors.com)
- Bill Gross At Long Last Admits Wrongness (blogs.wsj.com)
- PIMCO’s Bill Gross Talks Too Much (247wallst.com)