“Believe me, by the end of 2014, Pimco’s going to be at the top, not close to the middle,” the 70-year-old chief investment officer of the world’s biggest bond fund said today in an interview with Erik Schatzker andOlivia Sterns on Bloomberg Television’s Market Makers. “We’ve got a thesis here. We’re sticking to our guns, our new guns in terms of the new neutral.”
Pimco, based in Newport Beach, California, yesterday outlined its new outlook for the next three to five years, saying that the economy is entering a “new neutral” era. This will be characterized by global growth converging toward lower, more stable speeds and interest rates remain stuck below their pre-crisis equilibrium, after five years of what Pimco called the “new normal” of below-average growth.
Gross has struggled in the past year to reverse record redemptions as his $230 billion Pimco Total Return Fund (PTTRX) lagged behind peers. Total Return, which fell behind 87 percent of rival funds over the past year, has improved its performance to return 0.6 percent in the past month and beat 64 percent of competitors, according to data compiled by Bloomberg.
Gross said he is sticking to the front end of the yield curve, buying bonds maturing in 5 years to 7 years. He’s also focusing on high-yield bonds and risk assets, “which will be not high-returning but basically stable and low-risk and low-volatility,” according to Gross.
As “nothing does really well” in markets going forward, Pimco is focusing more on fundamental research than in the past, compared with broad macroeconomic calls, he said.
Total Return kept its holdings of Treasuries unchanged in April at 41 percent as the securities gained the most in three months, and mortgage-bond holdings fell to 19 percent, the lowest level since July 2010, the company’s website showed.
Pimco’s new outlook from its annual Secular Forum, which guides its world view and investment philosophy over several years, coincides with the departure of former co-Chief Investment Officer Mohamed El-Erian in March, who alongside Gross had been the public face of Pimco popularizing the “new normal” and whose abrupt resignation this year triggered reports of management disagreements at the firm.
Pimco’s latest thesis maintains the expectations for subpar returns outlined in the “new normal,” while focusing more on the outlook for low benchmark interest rates.
The market is anticipating a three percent to four percent Fed funds rate in the next three or four years, while Pimco thinks it’s much lower, Gross said. He is forecasting that the rate would be closer to 2 percent nominally, or zero percent after adjusting for inflation.
Gross started Pimco in 1971 with two other co-founders and has built one of the best long-term records in the industry. After El-Erian announced his departure in January, Pimco named six deputy chief investment officers in the biggest management shakeup in its history.
Gross reiterated today that Pimco is “a better company now than we were three to four months ago.”
Allianz, Europe’s biggest insurer, said profit at its asset-management unit slid, with clients pulling a net 21.7 billion euros ($30 billion) from Pimco in the first quarter, the Munich-based insurer said in a statement today.
To contact the editors responsible for this story: Christian Baumgaertel at firstname.lastname@example.org Sree Vidya Bhaktavatsalam, Josh Friedman