Bill Gross, Bond Market Whale, is His Own Worst Enemy (BOND)
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You might say Bill Gross is his own worst enemy. The performance of his flagship $263 billion Pimco Total Return Mutual Fund PTTRX continues to trail the Pimco Total Return Bond ETF (NYSE: BOND). While this is probably good for Gross's ego, since he manages both the mutual fund and the ETF, it probably does not bode well for the future of the mutual fund.
The problem with the mutual fund is scale. At $263 billion, Gross is a true bond market whale, and any move he makes could distort markets and cause more problems than they do benefits. Recently, this point was illustrated by traders at JPMorgan (NYSE: JPM), whose outsized bets on synthetic credit derivatives cost the company an estimated $5 billion.
With $1.8 billion dollars in assets, BOND has much greater flexibility and can own relatively illiquid assets and buy assets in bond auctions with thin volumes. On the other hand, the mutual fund version has its hands tied due to its massive size.
Gross's ETF clone has gains of 3.8 percent in the past 3 months. This compares the mutual fund version that has posted a gain of only 2.06 percent. Since its inception, BOND has gains of 6.5 percent, nearly double the returns in the mutual fund. In the past month, the spread between returns in BOND and PTTRX has contracted considerably, so it remains to be seen if the outperformance is a trend a one-off event.
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The problem with the mutual fund is scale. At $263 billion, Gross is a true bond market whale, and any move he makes could distort markets and cause more problems than they do benefits. Recently, this point was illustrated by traders at JPMorgan (NYSE: JPM), whose outsized bets on synthetic credit derivatives cost the company an estimated $5 billion.
With $1.8 billion dollars in assets, BOND has much greater flexibility and can own relatively illiquid assets and buy assets in bond auctions with thin volumes. On the other hand, the mutual fund version has its hands tied due to its massive size.
Gross's ETF clone has gains of 3.8 percent in the past 3 months. This compares the mutual fund version that has posted a gain of only 2.06 percent. Since its inception, BOND has gains of 6.5 percent, nearly double the returns in the mutual fund. In the past month, the spread between returns in BOND and PTTRX has contracted considerably, so it remains to be seen if the outperformance is a trend a one-off event.
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JPMorgan, William H. Gross, Pacific Investment Management Company, LLC (PIMCO)
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