Gross Tells Old Story in Return `Mediocrity' Call: Chart of the Day
“Global financial market returns stand at the threshold of mediocrity,” according to Bill Gross, who oversees the world’s biggest bond fund. Investors have been there before.
The CHART OF THE DAY shows the annual rates of return from investing 60 percent of assets in stocks and 40 percent in bonds over five-year periods. The percentages are a typical benchmark for asset allocation. MSCI Inc.’s All Country World Index and the Barclays Capital Global Aggregate Bond Index, two of the broadest market gauges, were used in the calculations.
Last year’s figure was 4 percent, according to data compiled by Bloomberg. Five-year returns fell short of this threshold four times earlier in the decade. They hit bottom at 1.1 percent for the period ended in 2002, the same year that the 1990s Internet bubble finished bursting.
Gross, co-chief investment officer of Pacific Investment Management Co. and manager of its flagship Pimco Total Return Fund, made the “mediocrity” reference in a monthly commentary posted yesterday on Pimco’s website.
Investors ought to expect “low single digit” percentage returns on stocks annually, he wrote. As for bonds, yields of less than 3 percent on global indexes are a harbinger of their future performance, in his view. The Barclays Capital index had a 2.54 percent yield as of yesterday.
Five-year returns averaged 11.7 percent during the second half of the 1990s, as the chart depicts. Since then, they have exceeded 10 percent only once: in 2007, the end of a five-year bull market for stocks.
(To save a copy of the chart, click here.)
To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net
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