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Monday, June 14, 2010

There are No Geniuses ....Bond Market Division

I have written before about the largest actively managed bond mutual fund in the world: Pimco Total Return. Although the firm and many analysts categorize it as a "core" bond holding I argue that since it can literally move anywhere in the realm of fixed income it is more of a bet in its manager "bond guru" Bill Gross. The investor in the fund never really knows what Pimco Total Return is holding and the market view and hence allocation of the manager can change radically. While Mr. Gross may indeed be a very bright man a core bond holding, as I have argued before, should consist of an etf or index fund where when knows exactly the maturity and credit quality of the holdings at all time.

As for the sharp changes in market view and strategy at Pimco Total Return. This from a Bloomberg article on the bond market

Lower Treasury yields may also reflect investor demand for a haven amid concern Europe’s debt crisis will slow the global economy.(Bill) Gross, who manages the $228 billion Total Return Fund, called the U.S. the “least dirty shirt” in a “world full of dirty shirts in terms of excessive debt.”
‘Significant Haven’
“A 30-year Treasury bond at just mildly above 4 percent is not a great value, but it’s a significant haven of storage, so to speak, for investors,” Gross, the co-chief investment officer at Newport Beach, California-based Pacific Investment Management Co., said in a radio interview June 4 on Bloomberg Surveillance with Tom Keene. “It’s attractive from the standpoint that inflation, in a new-normal economy, stays in the 1 to 2 percent area.
Gross boosted his fund’s investment in U.S. government- related debt in April to the highest level in five months. A month earlier he said in a separate Bloomberg Radio interview that “bonds have seen their best days.
Total return ytd for TLT (long term treasury etf) is 10.3% for PTTAX (Pimco Total Return Bond Fund)  it is 4.12%
 chart is below

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