No Love for the “King”

February 14, 2019

The King is gone. The formerly hailed “Bond King,” Bill Gross retired with a whimper in February from Janus Henderson. There seemingly was no love left for this once acclaimed investor, even as we land on Valentine’s Day today.

To understand some of what went on with Bill Gross, we need to revisit some history. You see, Gross was a gamechanger for the bond industry. He built the firm PIMCO from almost nothing to $2 trillion in assets. His performance track record was dominant, and his market thinking not just witty, but timely. This rare combination of talent led to his flagship fund, the PIMCO Total Return Fund, outperforming the benchmark time and again (see below).

Data from 9/26/1999-9/26/2014


For the 15 years before Bill abruptly left PIMCO, he had an outperformance vs. the benchmark of 1.20% per year, net of fees. In the high-quality bond space, that was not just spectacular, it was like a locomotive – steady and powerful.

Not surprisingly, with Bill’s abrupt exit (or ouster), doubts came over the PIMCO investors who were left behind with no king. In the year that followed his departure, assets flooded out the door (see below):

Data from 9/26/2014-9/26/2015


The flagship fund was cut by half in terms of its size, and one benefactor of this was a fund company more known for stocks than bonds, Janus. Their fledgling Janus Global Unconstrained Bond Fund would seemingly benefit from the arrival of a once hailed king. So Mr. Gross was hired, moving his office about a block away from PIMCO, and assets ballooned by 1,700% in the year (source YCharts, same time frame as the above chart).  This was a win up front for Janus.  After all, there’s no such thing as bad press, and the additional assets reflected this.

The challenge, however, came from Gross himself.  As stated in a recent NY Times article1, Bill said about PIMCO, “My whole evening is dependent upon whether I can beat them.”  To climb back to the mountain top and re-stake his claim to the kingdom, in his mind, performance was the route to show the world he still was who we thought he was.  But it turns out, an investment strategy anchored in vengeance is a particularly bad one.

Data from 9/26/2014-2/4/2019


In the years that followed, PIMCO kept doing its thing. Yes, Total Return stayed smaller than it had been before, but it did well. And PIMCO had a new flagship, the PIMCO Income Fund, which elevated another Morningstar Manager of the Year, Dan Ivascyn, likely to Bill’s chagrin. His new fund at Janus had greater latitude to do more, but when Mr. Gross used that latitude to try to beat PIMCO, it ended in defeat. Bill barely made any money for his investors in the 4+ years he sat at the helm of Janus’ bond fund. Gross even said “Maybe I should have stuck to total return and been a little more constrained.2” In other words, maybe he should have stuck with the discipline of what he knew to be right, not what he thought might beat someone else.

1 NY Times “Once the ‘Bond King,’ Bill Gross Retiring, His Star Dimmed” from February 4, 2019

2 Washington Post “Bill Gross Misfired at Janus.  But He Had the Right Idea” February 5, 2019

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Balasa Dinverno Foltz, LLC (“BDF”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from BDF.  Please remember to contact BDF, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. BDF is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice. A copy of BDF’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.

The Barclays Capital U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.