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Gross, who runs the Janus Global Unconstrained
Bond Fund, said in his latest Investment Outlook report:
"Unconstrained portfolios at Janus mimic most closely the
strategic philosophy at Bridgewater."
Unconstrained bond funds have become some of the most popular
investment vehicles over the last year because they have the
flexibility to invest in all types of bond securities globally
and often invest in credit rather than interest-rate sensitive
assets.
Bridgewater, with assets under management of about $169 billion
and run by Ray Dalio, has used leverage to try to magnify
returns on stocks, bonds and commodities.
"Cheap leverage is an alpha generating strategy as long as short
rates stay low," Gross said. "Of course if an investor borrows
short term to invest longer and riskier, the potential alpha
necessarily demands choosing the correct assets to lever. The
challenge is to purchase the ones that might remain artificially
priced over one's investment horizon."
Gross said corporate credit spreads are too tight and therefore
expensive. "Duration is more neutral but there is little to be
gained from it in the U.S., Euroland, and the U.K. unless the
global economy inches toward recession."
All told, Gross said the most attractive opportunity rests with
the notion that Mario Draghi's 18-month Quantitative Easing
program, which roughly purchases 200 percent of sovereign net
new issuance during that time, will keep yields low in Germany
and therefore anchor U.S. Treasuries and U.K. Gilts in the
process.
"I would not buy these clearly overvalued assets but sell
'volatility' around them, such that much higher returns can be
captured if say the German 10-year Bund at 20 basis points
doesn't move to –.05 percent or up to .50 percent over three
months' time."
(Reporting By Jennifer Ablan; Editing by Bernard Orr)
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