|TheStreet.com, Fall, 2014. This article was written with Oliver Pursche, the Co-Portfolio Manager of the GMG Defensive Beta Fund. It was part of a series of articles developed under an agreement with thestreet.com to work with a variety of contributors and assist them in delivering actionable investment ideas each week.|
Even though Bill Gross was the face of Pimco, the “bond king’s” recent departure isn’t reason enough to pull your money out of the Pimco’s total return fund.
Not that everyone sees it this way. So far, investors plucked $23.5 billion from the ETF — which has multiple classes and tickers, including Pimco Total Return Inst (PTTRX) — since his departure. The largest daily outflow occurred the day Gross resigned but the outflows have tapered.
Still, when investors hear “star manager” and read about billions of dollars moving, investors tend to herd up like lambs or lemmings.
Pimco’s Total Return Fund cut U.S. government-related debt holdings in September, watch the video below for details:
The hysteria surrounding Gross’ resignation is causing some investors to make short-sighted, emotional mistakes. Here’s why investors should stick with Pimco as a firm:
1. There was nothing untoward about the departure — no scandal, no misplaced funds — Gross is leaving to join Janus Capital (JNS – Get Report) where he will manage its newly-launched Janus Global Unconstrained Bond fund (another multi-fund with multiple tickers). This is a new challenge for him, a career move, and not a statement about his previous employer.
2. Pimco has a deep bench — as a matter of fact the Pimco Income Fund (PIMIX) maintains a 5-star rating and is one of the top performing funds in its category. This fund wasn’t even directly overseen by Gross; it’s co-managed by Dan Ivascyn and Alfred Murata.
3. This isn’t really a question of wrong vs. right as in was Pimco wrong or was Bill Gross wrong. Part of the reason for all the attention is one of the negative side effects of being on television. When you’re in the media a lot, a la Gross, your views are permanently registered.
The reality is that while Gross is a superstar fund manager, he has been wrong (in some of his public declarations) for the past couple of years. Perhaps his views have changed and performance will improve at Janus, but if he maintains his views — he won’t be the first star to be brought down by hubris.
4. Many seasoned investors who have listened in on several conference calls with Pimco are saying the company’s core approach and world view is straightforward and aligns with common sense.
5. Remember that with bonds, size matters — investors thinking of following Bill Gross to Janus would be wise to wait a while. The tiny $13 million Janus fund Gross is taking over is likely to go through some growing pains if asset flows are too large and come in too fast.
6. When the press goes wild over one issue, investors shouldn’t get caught up in the hype. Investors should look at their individual portfolio, determine what their goal and then follow the course which seems the best for the long term.
While investors should continue to review their portfolios when there are sudden changes in the market, they should ignore the hype in favor of keeping their own goals, timelines and risk tolerance at the forefront.
As for Pimco — the deep bench, the extensive experience and the large asset base — should give most investors with diversified portfolios comfort.
At the time of publication, the author held no positions in any of the stocks mentioned.