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 Gross stunned the investing world on Friday with his abrupt
departure from Pimco, the $2 trillion asset manager he co-founded in
1971 and where he had run the Total Return Fund, the world's biggest
bond fund, for more than 27 years.
Come Monday morning, Gross will join Denver-based Janus and next
month will take over its Unconstrained Bond Fund, which was only
organized in May. Janus is an asset management firm once known for
picking hot Internet stocks.
"For Gross, this is a new slate albeit a small one," said Jeff
Tjornehoj, senior analyst at Lipper Inc, a unit of Thomson Reuters.
Small may be overstating the Janus fund, at least in comparison with
the Total Return behemoth. The relationship between the Janus Fund
and the Total Return fund is the same as that of the population of
Ashtabula with the population of the U.S.: 314 million.
At end of August, the Janus Unconstrained fund held only 45 debt
issues with 70 percent of its assets in U.S. government debt. One
Treasury issue due June 2016 alone was worth 43 percent of the
fund's total assets. Most of the bonds have short durations, with
the average maturity of just over three years, indicating a
generally defensive posture.
The current managers of the Janus fund are head of fixed income
Gibson Smith and portfolio manager Darrell Walters. It's billed to
follow a strategy of "all-weather, credit-driven fixed income
investing," according to Janus' website. (https://www.janus.com)
By comparison, the Pimco Total Return fund holds more than 6,000
securities, ranging from plain-vanilla Treasuries to complex credit
derivatives. Forty-one percent of its holdings were in U.S.
government-related securities with the rest spread among riskier
debt, including mortgage-backed securities and corporate bonds.
LAGGARDS
The two funds do have something in common: weak performance.
While Gross more than earned his "Bond King" moniker by
outperforming rivals and the broader bond market by a wide margin
for most his career, his reputation as a shrewd bond picker has
taken a hit in the past year or so.
Last year, Pimco's Total Return Fund suffered its biggest annual
loss in almost 20 years, declining by a wider margin than the bond
market as a whole, which was buffeted by the U.S. Federal Reserve's
plans to dial back on its stimulus program.
This year, it has delivered a total return so far of 3.59 percent.
Still, that lags the wider market as measured by the benchmark
Barclays U.S. Aggregate Bond index, which is up 4.19 percent. The
fund is trailing 73 percent of its peers.
The Janus fund is doing even more poorly, however, stumbling out of
the gate since its debut this spring. It lost 0.76 percent in the
past three months compared with a 0.48 percent gain for the Barclays
Agg, and lags 74 percent of its peers.
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Getting this fund to grow will be a good measure of Gross's ability
to attract money, analysts said. Gross' former Pimco colleague and
Janus' chief executive Richard Weil said on Friday he'll look to
Gross to build Janus' new global macro fixed income business. Until
now, Janus is best remembered for its focus on technology stocks
during the late 1990s dot-com boom.
"He could pull in a lot of money on reputation alone," said
Tjornehoj, referring to Gross's long-term record and his widely read
monthly investment newsletter at Pimco.
At Janus, Gross will also be free of the recent distractions that
have beset him and his old firm.
A public falling out between Gross, 70, and former heir-apparent
Mohamed El-Erian earlier this year is credited with intensifying
investors' flight from the Total Return Fund. They have pulled $70
billion from the fund since last May.
On Wednesday, news surfaced that the Securities and Exchange
Commission is investigating whether Pimco inflated the returns of
its $3.6 billion Total Return exchange-traded fund.
Turning around a nascent fund might not be too tall an order,
analysts said. For instance, the ETF Gross ran at Pimco had
performed much better than the far-larger mutual fund, gaining 6.38
percent over the last 12 months versus 5.19 percent for the mutual
fund.
Fellow bond maven Jeffrey Gundlach, head of rival firm DoubleLine
Capital, often called the "King of Bonds" as opposed to Gross'
nickname of "Bond King," told Reuters he expects Gross to perform
well at Janus because he "isn't managing a lot of money."
Still, if the move to Janus doesn't pan out, analysts are doubtful
there's room for yet another reincarnation for Gross.
"I don't know if there's a third act for him," Lipper's Tjornehoj
said.
(Reporting by Richard Leong; Editing by Dan Burns and John
Pickering)
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