Bill Gross admits 'mea culpa' over Total Return underperformance

Veteran bond manager Bill Gross has issued a candid apology to investors for the recent underperformance of his $242 billion Pimco Total Return fund.

Publishing a special edition note, entiteld 'Mea Culpa', the bond manager confessed that he had had a ‘bad year’ underestimating debt difficulties in both the US and the eurozone.

Gross wrote: ‘As Europe's crisis and the U.S. debt ceiling debacle turned developed economies toward a potential recession, the Total Return Fund had too little risk off and too much risk on.’

In addition, Gross also touched upon his much-publicised decision to move out of US Treasuries earlier in the year, which he said was 'a little over blown in the press'.

Gross said moves into Canadian Treasuries and German bunds had not countered being underweight in US Treasuries – which had out-performed as investors sought out safe havens.

However, Gross - who last week piled into mortgage-backed securities – said he and his team would work hard to overturn the period of poor performance.

‘There is no quit in me or anyone else on the Pimco premises. The early morning and even midnight hours have gone up, not down, to match the increasing complexity of global financial markets,’ said Gross.

Looking ahead, Gross said Pimco was predicting zero growth in developed economies over the next several quarters. This, he said, would be factored into the portfolio construction of the Total Return fund.

Over the year-to-date, the Total Return fund has achieved 0.25% total return compared to the benchmark, Barclays Capital US Aggregate Bond TR, which has achieved 5.26% over the same period.