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Bill Gross: how to avoid being a loser in 2014

by Atholl Simpson on Jan 10, 2014 at 13:21

Bill Gross: how to avoid being a loser in 2014

Bill Gross has started the New Year with his own guide on how to avoid both ‘breaking the buck’ and losing money in 2014, following a year which saw bonds take a hammering.

After suffering his worst annual performance in almost two decades, the world’s biggest bond manager has brushed himself down and set his sights on avoiding a repeat of last year.

This follows his Pimco GIS Total Return fund losing 2.89%, while the fund’s Citywire benchmark, the Citigroup WGBI (Hedged GBP), rose 2.29% in US dollar terms over 2013.

Comparing current bond investors to seesaw riders, the manager of the $244 billion fund said being on the right side of this seesaw will be key for 2014.

‘First of all the obvious: an investor should own bonds with less duration and shorter maturities when the teeter totter [seesaw] is on the losing end.’

'As a rule, less duration should mean more alpha relative to an investor’s benchmark as the interest rate worm turns and the cycle shifts upward,' he said, adding that longer-term investors like pension funds would need to keep careful watch on their underweights in this scenario.

Riding the bond seesaw in 2014 will not always be about negative returns, he stressed, and there are ways to enter positive territory.

‘Maturity extension is just one of the ways to produce carry and total return in a fixed income portfolio.'

‘In addition there are 1) credit spreads, 2) volatility sales, 3) curve and 4) currency-related characteristics that when combined with maturity can produce returns over and above those microscopic Treasury bill rates, and still keep you from “breaking the buck” under a majority of scenarios.’

‘So in 2014, look for Pimco to stress credit, curve, volatility and a tiny bit of currency while de-emphasizing 10- and 30-year maturities that are Taper affected.’

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