Bill Gross Abandons Pimco Funds. Should You?

Fund Watch

Bill Gross Abandons Pimco Funds. Should You?

The bond king’s abrupt move to Janus raises more doubts about Pimco’s portfolios


By now, you’ve digested the news that bond guru Bill Gross has left Pimco, the firm he co-founded 43 years ago, to join Janus Capital Group (JNS). But what does Gross’s departure mean for the money you have in Pimco funds? Should you stay or go?

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The quick answer: It’s time to start looking around for better, more stable alternatives. When any key manager leaves, we’re always a little cautious. But Gross,70, was the main man in Pimco’s operation. He led the firm’s uber investment committee, making the big-picture calls on the economy and interest rates that then steered the strategy of many Pimco funds.

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Of course, recently some the firm’s calls have been bad. More than half of Pimco’s 88 funds ranked in the bottom half of their peer groups in 2013, after a couple of ill-timed bets on Treasuries.


But over the long haul, Gross was right more often than he was wrong. They don’t call him the “bond king” for nothing. Over the past 15 years, Pimco Total Return (PTTDX)—the firm’s flagship fund that was run by Gross and is still the biggest bond fund in the world—ranks among the top 12% of all intermediate-term bond funds with a 6.2% annualized return. That beats Barclays US Aggregate Bond index by an average of nearly one percentage point per year. “He’s the real thing,” Vanguard founder John Bogle said recently on CNBC, adding that Gross’s departure is Pimco’s loss.

Bad news has nagged the Newport Beach, Cal., bond shop. In March, Mohamed El -Erian, then Pimco’s chief executive and co-chief investment officer, left the firm. —many speculated because of power struggles with Gross. More bad news came in mid-September about a Securities and Exchange Commission investigation into whether Pimco inflated the returns of its actively traded exchange-traded fund, Pimco Total Return ETF (BOND), which names Gross as its manager. And now Gross is gone.

Bottom line, whether you think Gross has lost his mojo or whether he’s still king of bonds, his departure from Pimco is reason to consider other options. Says Todd Rosenbluth, director of fund research at S&P Capital IQ: “Any management change warrants scrutiny…and this change adds to one of the few factors we viewed as favorably for the fund, tenure of management.” Rosenbluth had a low, two-star rating on the fund before Gross’s resignation. “There are lots of fixed-income mutual funds with stronger records under current management.”

Earlier this year, Harbor Bond (HABDX), a fund that Gross ran as a clone of Pimco Total Return, was jettisoned from the Kiplinger 25, a collection of our favorite no-load funds. We replaced it with Fidelity Total Bond (FTBFX), which turned out to be a good move. Over the past year, Fidelity Total Bond has gained 4.9%, more than 1.5 percentage points better than Pimco Total Return and nearly 1.3 percentage points better than Harbor Bond. (Its annual expense ratio is lower, too.)


Officially, Pimco issued a statement saying the firm and Gross had “fundamental differences.” Gross, in a different statement, said it was time for him “to reduce executive and people management responsibilities at a large firm and focus on the pure aspects of portfolio management at a smaller one.” Janus said in a statement that Gross will manage the Janus Unconstrained Bond (JUCAX) fund, which launched in May, and “related strategies,” and will work with Janus’s global asset allocation team.

Is Janus Unconstrained Bond worth a look? We’d wait. The Denver firm is better known for its growth stock funds, but it has never truly come back since the bear market of the early aughts. It has seen steady outflows—as Pimco has—for the greater part of the past two years. In July, Janus hired Myron Scholes, a Nobel-prize winning economist, as chief investment strategist. Many of Janus’s bond funds launched in mid-2009.

While you’re waiting for the dust to settle at Janus, check out Metropolitan West Unconstrained Bond (MWCRX), another Kip 25 fund. It’s run by a quartet of managers. Metropolitan West Unconstrained is a steady fund from a well-respected fund firm that has low expenses.