Bill Gross, notable active bond fund manager, retires

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nisiprius
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Bill Gross, notable active bond fund manager, retires

Post by nisiprius »

(Disable Javascript before clicking link to access full article) Bill Gross, the king of the bond market, abdicates.

These are (mostly) my own remarks:

Gross was often called "the Bond King." He was one of the founders of PIMCO in 1971 and personally managed the PIMCO Total Return fund (PTTRX) from inception in 1987 until 2014. In 2014 he left PIMCO as the result of what the Economist article calls "a coup;" it says "Although he was as good at picking brainy colleagues as he was as picking securities, his analytical skills did not, apparently, extend to assessing their loyalty."

During that time period, the numbers from PortfolioVisualizer show that, compared to the Vanguard Total Bond Market Index Fund, it had higher return, and, while it had higher risk as measured by standard deviation, the risk was only slightly higher and the Sharpe ratio--a measure of risk-adjusted-return--was superior. The word "consistently" is often thrown around loosely, but on the face of it, by most measures, PTTRX actually has been consistently superior to Total Bond.

The Economist article notes that PTTRX reached $239 billion in 2013. At the time, that made it the biggest of all US mutual funds, and I believe the biggest in the world.*

Source

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An exception occurred in 2011, when Gross decided to pull the fund completely out of Treasuries. His reputation was high enough that in this forum, many people took this action as near-proof that Treasuries were in a "bubble." However, in 2011, PTTRX underperformed Total Bond and the Bloomberg-Barclay's Aggregate Index. Gross publicly took responsibility for this, describing himself in baseball terms as having the role of a "centerfielder" and scoring 2011 as "Error-Centerfield."

In 2014 he left for then-Janus (now Janus Henderson), and assumed management of the Janus Henderson Unconstrained Bond Fund, JUCIX, which, some hoped, would allow him the maximum possible scope for his active management skills.

It seems fair to say that JUCIX has been disappointing. $10,000 invested into it at inception in 2014 would now be worth $10,110, and assets, once I think as high as $2 billion, have dropped to less than $1 billion.

Source

Image

It is hard to know what to compare JUCIX to, but probably one would expect both higher risk and higher return than the index. In fact, since inception, JUCIX (blue) has considerably underperformed the Morningstar benchmark chose, "non-traditional bond" (orange); the Bloomberg-Barclay's Aggregate Index (green) and, thus, the Vanguard Total Bond Market Index Fund (yellow), as well as his old fund at PIMCO, PTTRX (purple). PTTRX has done perfectly well without him, despite losing 2/3rds of its assets over a period of a year or two.

It's always hard to know what to make of such stories. I haven't checked the numbers but I think the long and consistent outperformance of PTTRX is actually more impressive than Bill Miller's 15-year streak of beating the S&P 500. Did Gross have skill and lose it? If not, what happened? Throughout the years, many people in this forum have suggested that in addition to the small but visible extra risk Gross was taking in PTTRX, there were hidden risks associated with his use of derivatives, etc. However, from inception to date, those risks do not seem to have shown up.

I'm a Total Bond investor myself, and have never been tempted to use PIMCO Total Return instead, but the record is, of course, what it is.

*(Currently, counting all share classes, Vanguard Total Bond is at $204 billion, but I'm not sure whether we should add Vanguard Total Bond Market II, VTBNX, $154 billon to that. Vanguard Total Stock currently has $672 billion in assets).
Last edited by nisiprius on Thu Feb 07, 2019 3:30 pm, edited 1 time in total.
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bloom2708
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Re: Bill Gross, notable active bond fund manager, retires

Post by bloom2708 »

I had PIMCO Total Return in my 401k from 2000 to 2012. The fund had some really amazing years for a bond/income fund.

I switched to a Target Date fund for simplicity and lower expense ratio.

Thanks for the post. He had a good career.
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alter
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Re: Bill Gross, notable active bond fund manager, retires

Post by alter »

I still invest in several closed-end Pimco funds. Bill Gross made a lot of people money, like Mr. Bogle. So I'm thankful he helped start PIMCO.
alex_686
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Re: Bill Gross, notable active bond fund manager, retires

Post by alex_686 »

I always enjoyed reading Bill Gross's blog over at PIMCO. I always got a few insights on the structure of the bond market and what types of risks I was taking even if I was not in his fund.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
shawcroft
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Re: Bill Gross, notable active bond fund manager, retires

Post by shawcroft »

Nisiprius:
Thanks for your- as usual- excellent analysis. Quite helpful. I also hold the Total Bond fund and have been pleased with the stability it has given our holdings. It has done what I had hoped. For those who selected the PIMCO fund, its even better for them. We should all be pleased.
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matjen
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Re: Bill Gross, notable active bond fund manager, retires

Post by matjen »

Nice post Nisi. Thanks.
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Pigeye Brewster
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Re: Bill Gross, notable active bond fund manager, retires

Post by Pigeye Brewster »

nisiprius wrote: Thu Feb 07, 2019 12:13 pm
It seems fair to say that JUCIX has been disappointing. $10,000 invested into it at inception in 2014 would now be worth $10,110, and assets, once I think as high as $2 billion, have dropped to less than $1 billion.
Of that, $700 million was his own money.
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Re: Bill Gross, notable active bond fund manager, retires

Post by Doc »

nisiprius wrote: Thu Feb 07, 2019 12:13 pm In 2014 he left for then-Janus ...
It's hard to see the Gross effect with long term growth charts.

Here's a 36 month rolling return chart of PTTRX.

You can see the outperformance compared to TBM up to a few years before he left. After the customer base flight from the fund was absorbed PTTRX was again outperforming but not to the extent during the Gross era.

Image

I've owned PTTRX since 2006 and had watched it for some five years before that before I pulled the trigger.
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retire2022
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Re: Bill Gross, notable active bond fund manager, retires

Post by retire2022 »

OP latest story on Morningstar of Bill Gross departing Janus Henderson:

https://www.morningstar.com/articles/91 ... -of-j.html
Corgitodd
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Re: Bill Gross, notable active bond fund manager, retires

Post by Corgitodd »

Bloomberg tv interviewed Bill Gross and aired last Friday, the day he retired. they may repeat the interview or it may be on Bloombergs website. Gross talked about that he recently learned that he has Asbergers.
international001
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Re: Bill Gross, notable active bond fund manager, retires

Post by international001 »

PTTRX is great, but you need to know what you use it for.

There are better passive options if you were using bonds for balancing against stocks

https://www.portfoliovisualizer.com/bac ... tion4_3=45
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