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. ?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.
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.
Interestingly enough as a semi long time PIMCO Total Return investor I was half way out the door already. Last year I cut my allocation in half worried the fund had grown too large and seeing it under perform for several quarters. I don’t think the fund will implode, but do expect continued redemptions to force it to sell more positions than it would like.
I don’t plan on following Bill Gross to Janus. If was going to follow a bond star with a record, I guess it would be Jeff Grundlach, but am planning to move my fixed income retirement portfolio over to an indexer such as Vanguard. My view is that the bond market is fairly efficient and that its become increasingly difficult for a bond fund of any size to outperform for long and that for fixed income a better strategy is to focus on bond fund expenses.
I’ll miss reading Bill Gross’ weekly PIMCO market views. While they’ve been wrong of late, they present a unique perspective and the read a good intellectual exercise.