Pimco Bond Guru Bill Gross Bets on TIPS and Loses

On April 19, three weeks before he said the 30-year bull market in bonds was over, Bill Gross announced he was buying TIPS—Treasury Inflation-Protected Securities. In doing so, the bond guru bet that money printing by the world’s central banks would push up consumer prices. While the price of conventional Treasuries subsequently fell as he had predicted, so did the market’s fear of inflation, driving down the value of TIPS. That amplified losses for Gross’s $268 billion Pimco Total Return Fund, which fell 4.7 percent in May and June, prompting $9.9 billion in withdrawals last month, the most on record.

The losses highlight the difficulties Gross faces as he steers Pacific Investment Management, the investment firm he helped found. With $2 trillion in assets, Pimco is arguably up against the biggest market challenge since its inception in 1971. Gross has had 9 percent to 12 percent of Pimco Total Return’s net assets invested in TIPS since at least the end of 2011, convinced that efforts by Federal Reserve Chairman Ben Bernanke and other central bankers to stimulate their economies will ultimately fuel inflation. TIPS were the biggest factor in Pimco Total Return’s losses in May, according to Eric Jacobson, an analyst at Morningstar. Gross didn’t respond to requests for comment.