Bill Gross denounces the “total return” bond funds he popularized


What do you want to know

  • They clung too tightly to their benchmarks, essentially becoming “quasi” index tracking strategies, according to Gross.

Bill Gross pioneered the “total return” strategy in the 1980s, which revolutionized the once dormant bond market.

Now the co-founder of Pacific Investment Management Co., who was ousted in 2014, says many funds bearing the name are failing to live up to their mission after suffering heavy losses this year.

Instead of helping to cushion the market downturn, they clung too tightly to their benchmarks, essentially becoming “quasi” index-tracking strategies, according to Gross, who created Pimco’s Total Return Fund in 1987, which will eventually become the largest mutual in the world. fund at its peak.

In a Tuesday post on its website, Gross singled out product Pimco and Jeffrey Gundlach’s DoubleLine total return bond fund, which have lost nearly 17% and 14% respectively this year.

Their benchmark – the Bloomberg Aggregate Bond Index – has fallen 16% this year as the Federal Reserve’s aggressive policy tightening took a heavy toll on bond investors.

“These total return funds are actively managed with the ability to pull down in terms of term to maturity, but they all seem to seek ‘index-plus’ performance as opposed to ‘total return’ management,” Gross wrote, 78 years old.

They “lost their total return ‘charter’ or vision of what these funds should offer investors in the form of capital preservation,” he added.

Individual investors choose these funds for their 401K retirement accounts, “believing they will provide defensive performance in times of stress,” Gross continued. “They were misled.”

Agnes Crane, spokeswoman for Pimco, declined to comment. On the company’s website, it says the total return fund “seeks maximum total return consistent with capital preservation and prudent investment management.”

The fund has limits on overweight or underweight duration, a measure of interest rate risk, relative to the index.

Earlier this month, Pimco recruited chief investment officer Dan Ivascyn to the management team of the Total Return Fund, after Scott Mather, one of the company’s longest-serving executives, took personal leave.

A Doubleline spokesperson did not respond to Bloomberg’s requests for comment.


Comments are closed.