US Bond Prices and Bill Gross: Pimco’s Gross Regrets ‘Mistake’ on US Debt Call

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If an investment strategy relies on an accurate forecast of the future it will eventually fail. Eventually even the most famous traders will get it wrong. Your retirement plan is far too important to risk it on forecasters.

Bill Gross, manager of the world’s largest bond fund for Pimco, has admitted that it was a mistake to bet so heavily against the price of US government debt.

Mr. Gross emptied his $244 billion Total Return Fund of US government-related securities earlier this year in a high-profile call that has backfired as the bond market has rallied. As of Monday, Pimco’s flagship fund ranked 501th out of 589 bond funds in its category.

“Do I wish I had more Treasurys? Yeah, that’s pretty obvious,” Mr Gross told the Financial Times last week, adding: “I get that it was my/our mistake in thinking that the US economy can chug along at 2 percent real growth rates. It doesn’t look like it can.”

When the yield on the 10-year Treasury [US10YT=XX  2.184    -0.06  (0%)   ] was 3.5 percent in January, Mr Gross warned that the risk of rising inflation made government debt a poor investment.

Bond prices move in the opposite direction to bond yields, which he forecast would rise as Ben Bernanke, chairman of the Federal Reserve [cnbc explains] , brought the second program of bond buying, known as quantitative easing [cnbc explains] , to an end in June.

Investors saving for retirement should not rely on active managers to predict where the market is going. No matter how long the track record, even the best will fall in the long run.

Please comment or call to discuss.

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Pay To Play In 401(k)? Pimco, Dodge & Cox, American Funds Eyed

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At the request of Dow Jones, pension consultant BrightScope used its database to gauge payments by a handful of individual funds that are popular in retirement plans.

It estimated:

  • The Bill Gross-led Pimco Total Return Fund (PTTRX) pays about $145 million a year for what’s termed “shelf-space.”
  • The popular Growth Fund of America (AGTHX) pays $75 million a year to retirement plans.
  • The Dodge & Cox Fund (DODGX), whose managers are famous for refraining from self-promotion and avoiding the media, pays around $20 million a year.

Salisbury presented BrightScope’s numbers to all three companies. Pacific Investment Management Co., whose Pimco Total Return fund holds $50 billion in retirement assets on more than 13,700 plans according to BrightScope, didn’t comment directly on the figures.

Pimco did say it provides “a range of share classes” with different fee options for employers and investors. It also told Salisbury: “We strongly support efforts to bring fee transparency to both plan sponsors and participants.”

American Funds also declined to comment, but said it didn’t dispute BrightScope’s totals. Dodge & Cox said what it pays to plan packagers is “much lower than the industry average.”

The report notes that the Department of Labor has said it will require plans to start telling employees if payments from funds are used to cover plan costs starting next year.

If these funds are that good why do they have to pay to be included in 401(k) plans?

Please comment or call to discuss how this affects you.

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