Bill Gross today revealed three keys to their investing strategy as he brought up his age and mentioned turning the keys over, comparing PIMCO to a Mercedes Benz rather than a Model-T or a Cadillac “and never a compact car.”
Morningstar conference: Bill Gross revealed three pillars of his success
Keynoting the Morningstar investing conference in Chicago this afternoon, Bill Gross revealed three pillars of his success: a bonds plus program, rolling down the yield curve to garner the best real return, and selling volatility. The deep discussion of the formulaic aspects of his strategy was unusual, as he exposed rather innovative strategies.
When PIMCO sells volatility, for instance, they don’t use common derivatives tools but rather sell the 30 year mortgage products that return nearly seven percent. “There is nothing wrong with selling insurance,” Bill Gross said, without diving deep into his strategy to the point of revealing exactly how derivatives and swaps may be used as a tool in “selling insurance.” Selling insurance may indicate Gross sells the equal of selling an option interest rates, a common tactic of the large banks.
Bill Gross uses derivative products to accentuate another of his key points of success. In the bonds plus program, for instance, Gross uses interest rate derivatives to accentuate the fund’s position, noting the cost of the exposure is less than investing only in the cash market. He also uses derivatives in the stocks plus program to juice returns.
The third of Grosses strategy pillars is rolling down the yield curve. Gross noted that the five year note products can have better performance than a 30 year bond particularly as time rolls down the yield curve and move closer to maturity.
Bill Gross's stylish entry
Bill Gross walked on stage wearing sunglasses in a dimly lit McCormick Place auditorium packed with investment advisors. Proclaiming he’s 70 years old “and moving on as they say,” Gross repeatedly compared himself to a “70 year old version of Justin Bieber,” while others may compare him to a Kim Kardishian impersonator “if you want to hear about my feminine side,” he said.
Bill Gross delivered a rambling presentation in which he pondered the ability to hypnotize journalists and detractors as in the movie the Manchurian candidate, a topic he spent considerable time discussing. He wondered aloud, almost bemoaning, that the world’s leading bond fund lost $50 billion in assets recently.
Bill Gross did humorously address the personal problems he has had at the company, quipping that he would like to hypnotize people into saying Bill Gross is the kindest, warmest human being they ever knew, a line from Manchurian Candidate.
As Bill Gross left the stage, his presentation appeared to hint at a retirement is one were to speculate as to the meaning of the multiple quips about his age, moving on, turning over the keys. It was here that he also stressed investment templates that have been created by great historic fund managers such as Ray Dialo and Warren Buffett. Here, without saying it, could be Grosses legacy. As the bond market comes to a historic low, some observers may say the magic might be gone from his profitable relationships in the bond market. However, this might not recognize the rather unusual keys to success that Gross revealed today – and how this template might work in a rising rate environment.