Time to Chase Bill Gross? by David Merkel, CFA of The Aleph Blog
Jason Zweig at the Wall Street Journal had a very good piece on whether to follow Bill Gross as he goes from Pimco to Janus Capital Group Inc (NYSE:JNS). Let me quote one paragraph:
Morningstar estimates that over the past five years, the average investor fell behind Pimco Total Return’s 5.6% annual gain by 1.6 points a year—largely as a result of buying high and selling low. That gap is among the widest of any large bond fund; at the Vanguard Total Bond Market Index Fund, for example, investors have earned returns only 0.4 point lower than those of the portfolio itself.
In the short run, this offers a reason to follow Bill Gross to Janus. He is starting with a clean slate, and will be able to implement positions that seem attractive to him that would not have been attractive at Pimco because they would have been too small. Managing less money lets Bill Gross be more choosy.
Philip Carret was an investor and founder of Pioneer Fund, one of the first mutual funds in the United States. Carret ran the mutual fund for 55 years, during which time an investment of $10,000 became $8 million. That suggests he achieved a compound annual return of nearly 13% for his investors. Q1 2021 hedge Read More
Second, in the short run, growth in bond assets at Janus will temporarily push up the prices of bonds held by Janus. Those that get in early would benefit from that if bond assets grow under the management of Bill Gross. Just keep your eye on when assets stop growing if you are buying for that speculative reason.
A third potential reason to follow Gross depends on how much Pimco continues to use his quantitative strategies. If Pimco abandons them (unlikely, but not impossible), Janus would get the chance to use them on much less money, which would make the excess returns greater. If I were considering this as a reason, I would watch the turnover in Pimco’s main funds, and see if certain classes of assets disappear.
My last point here is that the abilities of Bill Gross will do better managing less money, but the effect won’t be so great if he is competing with Pimco to implement the same strategies. At minimum, he’s not likely to do worse than at Pimco, and in the short-run, there are some reasons why he will likely do better.
PS — please remember that Bill Gross has two hats: the showman and the quant. The quant makes money for clients while the showman entertains them. The showman opines about the Fed, politics, etc. That can get investors interested because it sounds clever, but that is not how Bill Gross makes money.
This brings up one more point. If you do decide to invest with him at Janus, review the prospectus to see what degree of flexibility with derivatives Gross will have. If it similar to what he had at Pimco, he is likely following the same strategy.