Don’t Count Bill Gross Out Quite Yet

bill grossDavid Fabian: As the biggest bond fund manager in the world, Bill Gross and PIMCO garner a great deal of headlines in a year like 2013 where rising interest rates capped traditional fixed-income gains.  When you hear that his flagship mutual fund, the PIMCO Total Return Fund (PTTDX) lost more than $40 billion in asset outflows last year, it’s easy to jump to conclusions that the ship may have lost its rudder.  However, I would not be so swift to discount the management or resilience of this company given its long track record of success.

The Total Return fund has not posted an annual loss since 1999, which makes 2013 an outlier year for fixed-income returns.  According to Morningstar, the 2013 price return of the PIMCO Total Return ETF (NYSEARCA:BOND) was -1.26% in 2013 which beat the benchmark iShares Barclays Aggregate Bond ETF (NYSEARCA:AGG) loss of -1.98%.  While no one likes a year of negative performance, it is worth noting that Total Return did beat its underlying benchmark which is the objective of the fund.

Volatility in fixed-income is a relatively new concept that investors are coming to grips with given the recent changes in interest rates and Federal Reserve policy measures.  Intermediate-term bond holders are embracing the notion that they have to reduce their duration risk and forego additional yield in favor of safety.  This trend is one of the reasons that ETFs such as the PIMCO 0-5 Year High Yield Corporate Bond ETF (NYSEARCA:HYS) and the PIMCO Enhanced Short Maturity ETF (NYSEARCA:MINT) experienced combined net inflows of over $4 billion last year.

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