Yesterday El-Erian said to step back in March in order to have time for the family and his next book. Bill Gross thereupon announced to switch the focus to Asset Management with stocks. Gross is going to appoint more “deputies” with different responsibilities. The stock price of parent company Allianz dropped.
Is PIMCO going to lose its reputation as bond manager?
Short answer - Yes. This is huge news. Gross wanted to step down in the next few years and leave it to the Mustached Maestro. Now, Bill is stuck with no heir apparent. Plus, the mutual fund world, particularly when it comes to fixed income, follows star managers. This is a major blow.
This has been a great week for Gundlach.
One of the advantages of the fixed income world is that it is harder to create a real index portfolio in bonds, the way you can in stocks. With stocks, all stocks have the same maturity (i.e. never, or at least “until bankruptcy”) and therefore are substitutable (with a few exceptions, like voting/non-voting shares). Bonds change their maturity and duration constantly, and it’s not really practical to own a little bit of every bond out there.
So the advantage of this for the bond manager is that even in an environment where interest rates are rising, there is a role for a manager to manage a portfolio (even if perhaps it is active in the sense of a computer telling you what to buy and sell).
Bonds are basically useful for two reasons 1) to provide an un- or low-correlated source of returns to a stock portfolio, and 2) to neutralize known liabilitiy streams.
There also may be more active management options in foreign bonds, particularly the EM bonds. The level of risk will undoubtedly rise vs. what we saw 10 years ago, but if you need fixed income, it may be one of the few sources of return that can be actively managed for some kind of alpha - that, and high yield.
What is El-Erian’s investment record? He seems to be the archetype of Samuel Huntington’s “Davos Man”.
Pretty good post. Can’t figure out what it has to do with OP’s question, but whatever. It’s the Internets.
Didn’t realise Gross was a Charterholder. Neato.
As far as I know, he wasn’t when I was at PIMCO.
^ I actually looked him up in the member directory, so unless you were at PIMCO prior to 1977… 
Nope: 1995 – 2001.
So . . . he hid it from us all those years.
It’s loosly related to the question “Is PIMCO going to lose its reputation as bond manager?”
With interest rates looking like they will go up, it’s hard to argue “put your money in a bond fund,” so PIMCO’s reason to exist as a bond fund is under challenge in this environment.
But the fact that you can’t index bonds as easily as you can index stocks means that there will still be room for bond managers to manage liability neutralization and to handle the fixed income side of a diversified portfolio. So PIMCO may have to modify how it positions itself as a bond manager, but it doesn’t mean that PIMCO has to lose its reputation as a bond manager.
On a net flow basis, intermediate-term bond funds lost a ton of money last year. However, by gross purchases they still ranked in the top five Morningstar categories. Bond funds aren’t going anywhere. An advisor can’t build a portfolio without a core bond position. What OP is asking is if broker-dealers/advisors/investors are going to move to another bond fund with the loss of El-E. As for positioning, pimco has launched several non-traditional bond funds over the last few years. They’re positioned well. They just need better performance.
You’re looking at this from a consultant/institutional perspective. Pimco Total Return (Bill Gross’ baby) is a retail vehicle. People aren’t going to run for the exits as long as Bill sticks around, but it’s not like Total Return has had a great last couple of years either.
Also - screw pimco. They make my job much tougher.
Yep, he’s listed as a charterholder awarded in 1977, he may not list it by his name, but CFAI records him as one.
Always enjoy to listen to El-Erian when he gives his market views. Can’t wait for his new book.
He’s a crafty one.
Who edited my post to capitalize pimco? That pisses me off more than anything Blake ever did to this forum. I didn’t break any rules so leave my post alone. Furthermore, if you’re going to modify my post, have the decency to leave behind a note saying who did it and why.
Someone is getting a little trigger happy with their Boardmember powers.
DOUBLE
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(note: bchad edited this one, but I didn’t edit the PIMCO one)
Edit: Golf clap. Plus I knew it wasn’t you. Not your style. I have a pretty good idea…He’s off my xmas card list.
+1
I did. It looked weird. Sorry. Won’t happen again.
Apology accepted. You’re back on my xmas card list.
You didn’t send me one this year. I cried all through New Years, STL. 