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U.S. real yields - which adjust for inflation - have been
declining in response to the Federal Reserve's aggressive
monetary actions over the past few months to limit the economic
fallout of the coronavirus pandemic. The yield on the 10-year
Treasury Inflation-Protected Security (TIPS) <US10YTIP=RR> has
been trading with a negative yield since late March and is now
minus 0.803%, near an all-time-low.
Gross, who co-founded Pacific Investment Management Company,
then spent four years at Janus Henderson before leaving in 2019
to manage his own money, said that the reason that the "Fab 5
stocks" and growth stocks in general had done "so fabulously
well" centers on falling real interest rates that "are still
reaching historic lows." Gross is referring to a clutch of
high-performing stocks: Amazon, Facebook <FB.O>, Apple, Netflix
<NFLX.O> and Google's parent Alphabet <GOOGL.O>, according to
his spokesperson.
The yields of TIPS are highly correlated with growth stocks, but
have far less of an effect on the prices of traditional value
stocks, he wrote.
The future price disparity of Microsoft <MSFT.O>, Apple and
Amazon "is subject to an ongoing decline in real rates, which to
my mind, have seen their best days," Gross said. "Value stocks,
versus growth stocks, should be an investor's preference in the
near-term future," he writes.
Gross said that as well as IBM and Altria, he likes stocks such
as midstream company Enterprise Products Partners <EPD.N> and
pharmaceutical giant AbbVie <ABBV.N>.
"Happiness is a healthy body, sinking a few 10-foot putts, and
investing in value, versus the 'Fab 5'," wrote Gross, who also
said he was COVID-19 free.
(Reporting by Kate Duguid; Additional reporting by Gertrude
Chavez-Dreyfuss; Editing by Megan Davies and Christopher
Cushing)
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