Bill Gross’s Flagship Fund Suffers Biggest Loss Since 1994

January 4, 2014 Leave a comment

Jan 2, 2014

Bill Gross’s Flagship Fund Suffers Biggest Loss Since 1994

MIN ZENG

It was a bruising year for the world’s biggest bond fund run by high-profile fund manager Bill Gross, as the fund suffered the biggest annual loss since 1994.The $244 billion Total Return Fund at Pacific Investment Management Co., logged a loss of 1.92% in 2013 in total return following a 10.4% gain in 2012, according to data from Morningstar Inc.MORN +0.01%

The 2013 loss represented the first year the fund posted negative return since 1999. Before 2013, Mr. Gross’s fund had only posted negative return on a calendar year basis twice since its inception in 1987, a loss of 3.58% in 1994 and a decline of 0.28% in 1999, according to Morningstar.

Mr. Gross is among many bond fund managers that were hurt by rising bond yields. The benchmark 10-year Treasury note’s yield, a base rate for the broader fixed income markets, rose to 3.03% at the end of 2013 from 1.76% at the end of 2012, the biggest annual increase since 2009. When bond yields rise, their prices fall.

Most of US fixed income assets lost ground in 2013. Growing confidence over the US economy sparked a strong rally in stocks, making equities more attractive to invest. Clients have yanked $36.2 billion from Mr. Gross’s fund during the first 11 months of 2013, set for the biggest annual outflow for the fund, according to Morningstar.

“In the context of an improving global economy, particularly the U.S. economy, a rotation out of bonds into [riskier assets] should be expected,” said Adrian Miller, director of fixed income strategy at GMP Securities.

One solace for Mr. Gross–the fund’s loss was smaller than 2.02% on the Barclays US Aggregate Bond Index.

The fund was stung by a record quarterly loss of 3.6% during the second quarter of 2013 when global fixed income assets suffered a rout on fears the Federal Reserve would soon pull back bond buying.

The fund posted positive return during the second half of the year, which narrowed the annual loss in 2013.

Despite the 2013 setback, the fund holds a strong longer-term track record.

The fund has handed investor a positive return of 6.46% on average in the past 15 years through the end of 2012, beating 5.23% on the benchmark and outpacing 96% of its peers, according to Morningstar.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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