20
It’s too soon to harshly judge the missteps of
PIMCO
Total Return
PTTRX
or near clones
Harbor
Bond
HABDX
and
Managers PIMCO Bond
MBDFX
.
Conventional Treasuries are not to blame this time
around, but rather Treasury Inflation-Protected Secu-
rities. Manager Bill Gross has long held a stake in
the sector (
12%
in April
2013
), and it proved sensitive
to the spike in long-maturity yields that began in
May
2013
. Exposure to emerging-markets debt (
8%
)
has hurt as well. The fund tumbled
3
.
6%
in the
second quarter and sat in the category’s bottom quar-
tile for the year through June.
By contrast, the fund’s
2011
’s troubles were about
the Treasuries that Gross didn’t own. Credit-sensitive
portions of the market were spooked by financial
trouble in the European Union during that year’s third
quarter, and Treasuries rallied. Gross had slashed
them earlier that year, which left the fund nursing a
loss for the quarter as benchmarklike funds posted
gains. That error put its mark on the fund’s entire year;
it placed in the category’s bottom quartile.
Macro bets of those kinds have come to dominate the
fund’s high-level decision-making in recent years,
and Gross’ tool kit has narrowed some as the assets
under his command have ballooned. The fund’s sec-
tor successes, however, highlight the breadth and
depth of skill and ability that subadvisor
PIMCO
still
brings the table. The fund had a much better
2012
,
for example, with a
10
.
4%
gain. And while it did
benefit from good Treasury yield-curve positioning,
the fund scored the bulk of its outperformance
in other markets. Both agency and nonagency mort-
gages made important contributions, for example,
as did exposures to investment-grade corporates,
junk bonds, and emerging-markets debt.
Gross uses a mix of macroeconomic forecasting
(supported by
PIMCO
’s investment committee) and
bottom-up analysis (supported by
PIMCO
’s sector
specialist desks) to determine interest-rate, yield-
curve, currency, country, sector, and issue-level
decisions. He has relied mostly on decisions at the
sector level and above for many years, given the
enormous number of assets he manages across ac-
counts with the same or similar mandates as this.
Despite the limitations of size, the breadth of Gross’
tool kit is still notable. He made significant interest-
rate and yield-curve plays (to the fund’s detriment) in
2011
and took on meaningful exposures to non-U.S.
developed markets (roughly
18%
in December of that
year), emerging-markets debt (
10%
), and municipals
(
4%
) relative to the fund’s benchmark, the Barclays
U.S. Aggregate Bond Index. The fund was also more
adventurous than most in the intermediate-term
bond peer group. It’s difficult to quantify the fund’s
use of derivatives, but while they’ve been cutting
back, Gross and
PIMCO
historically have used as
many or more (in both variety and volume) than just
about any of their competitors. The level of analy-
tical research and operational support backing these
is intense.
In the months leading up to the latest sell-off,
PIMCO
argued that most asset classes were fully valued, and
the portfolio looks more conservative than it has in
a while, hewing closer to the Aggregate Index. As of
May
31
, its duration was slightly short of the bench-
mark, its Treasury-sector focus was on intermediate
maturities, and its investment-grade credit exposure
was light relative to the bogy (
6%
versus
22%
).
The fund also slashed its mortgage weighting to
34%
.
The fund’s occasional stumbles may be particularly
disappointing to investors who have come to expect
perfection from this fund, but they’re otherwise
bumps in a long road of great success. Gross has
continued to show, in both bull markets (
2012
)
and bear (
2008
), that the fund can still excel. Its solid
longer-term returns and moderate volatility have
combined to form an excellent record.
œ
Contact Eric Jacobson at
A Stumble From Bill Gross
Income Strategist
|
Eric Jacobson
