Showing posts with label pimco fund. Show all posts
Showing posts with label pimco fund. Show all posts

Saturday 4 October 2014

PIMCO’s Flagship Fund Sees Its 17th Straight Monthly Outflow, And It Was Massive

pimco outflows


PIMCO’s flagship Total Return Fund saw a breath taking $23.5 billion in net outflows in September.
“Of note, the largest daily outflow occurred on the day of Bill Gross’s resignation from the firm, while outflows on the two following days were considerably smaller,” PIMCO said in a press release.
That was the 17th straight month of net outflows for a cumulative total amount of about $92 billion.
All of this is part of the legacy that CIO Bill Gross leaves behind as he heads to Janus Capital.
PIMCO has attracted a lot of attention in recent months, largely because of the unexpected departure of CEO Mohamed El-Erian and revelations of Gross’s unorthodox management style.
Despite the outflows, PIMCO’s fund continues to be massive with roughly $200 billion in assets under management.


Finance

The Bill Gross Blunder That Led To His Demise

 

Bill Gross
 
Bill Gross
In the wake of Bill Gross’ shock departure, Paul Krugman has been hammering on an important point, which is that PIMCO really started hitting the rocks when Bill Gross made a wrong call about interest rates in 2011.
Paul Krugman has written four posts on the topic (here, here, here, and here).
So what’s it all about?
Well here’s the quick and dirty version.
In early 2011, Bill Gross completely exited the Treasury market on the premise that interest rates were going to surge and hit bonds.
The reason he thought interest rates were going to surge was that the Fed was ending QE2 in the summer of 2011. In a note written to investors in March, 2011 he asked:  Who will buy Treasuries when the Fed doesn’t?
The thinking was that the Federal government was running gigantic, trillion-dollar deficits at the time, and that nobody wanted all that US debt, and it was only the Fed buying debt, holding our interest rates down.
That sounded compelling, but actually was pretty flimsy, and even at the time people were criticizing the thinking.
Krugman was criticizing Gross at the time, arguing that interest rates weren’t a function of how much debt the US was offering, but rather about US growth and inflation prospects. And since at the time, we were digging ourselves out of a gigantic economic hole, there was no chance of a pickup in inflation.
So Gross was using a flawed economic model (as were the deficit hawks who insisted that the US had to get its spending down to avoid a Greece-like bond spiral).
When QE2 ended, interest rates didn’t rise… they actually fell, perhaps because the markets interpreted the end of Fed easing as a reason to bet against rising inflation or growth.
This was THE core economic debate of the post-crisis years. The economists like Krugman, who relied on traditional models, correctly surmised that interest rates would not surge and that the debt would be a problem.
Folks like Bill Gross (and Republicans politicians) thought the Fed was distorting the market, and keeping interest rates from surging, and that turned out to be wrong.
And that lead to a period of underperformance for PIMCO, and the start of the turmoil that saw significant outflows, and ultimately the departure of Mohamed El-Erian and then Gross.
These debates mostly aren’t talked about now, but as stated above, this was really the whole story back in the day. And it ended up costing Gross his role in the company he created.

http://www.businessinsider.my/this-was-the-bill-gross-blunder-that-led-to-his-downfall-2014-10/#.VC6t0klXjIU

Wednesday 22 December 2010

Pimco says 'untenable' policies will lead to eurozone break-up

Pimco says 'untenable' policies will lead to eurozone break-up
Pimco, the world's largest bond fund, has called on Greece, Ireland and Portugal to step outside the eurozone temporarily and restructure their debts unless the currency bloc agrees to a radical change of course.
Bernard Chawmeau-French man against the Euro tears up a mock 100 euro note in the front of the Arc de Triomphe;Paris. Pimco says 'untenable' policies will lead to eurozone break-up
Pimco said current policies are untenable in the absence of fiscal union and will lead to a break-up of the euro 
Andrew Bosomworth, head of Pimco's portfolio management in Europe, said current policies are untenable in the absence of fiscal union and will lead to a break-up of the euro.
"Greece, Ireland and Portugal cannot get back on their feet without either their own currency or large transfer payments," he told German newspaper Die Welt.
He said these countries could rejoin EMU "after an appropriate debt restructuring", adding that devaluation would let them export their way back to health.
Mr Bosomworth said EU leaders were too quick to congratulate themselves on saving the euro last week with a deal for a permanent bail-out fund from 2013.
"The euro crisis is not over by a long shot. Market tensions will continue into 2011. The mechanism comes far too late," he said.
The bond fund argues that the EU strategy of forcing heavily indebted countries to undergo draconian fiscal austerity without offsetting stimulus is unworkable.
The austerity policies are stifling the growth needed to stabilise debt levels.
"Can countries inside a fixed exchange-rate system like the euro grow and tighten budget policy at the same time? I don't think so. It didn't work in Argentina," Mr Bosomworth said.
Pimco also gave warning that the bond vigilantes have lost faith in the policy and are trying to liquidate their holdings of peripheral EMU faster than the European Central Bank (ECB) can buy the debt, causing a relentless rise in yields, and a vicious circle.
Despite this, the ECB said on Monday that it had cut purchases of government debt last week, settling €603m (£509m), down from €2.68bn a week earlier. The withering comments from the world's top investor in EMU sovereign debt is a blow for Portugal and Spain. Both nations are hoping bond spreads will start to narrow before they face a funding crunch in the first quarter of next year.
Jacques Cailloux, chief Europe economist at RBS, agreed that last week's European summit had failed to grasp the nettle.
"None of the policy responses put in place in Europe since the start of the crisis provides a credible backstop to prevent further contagion," Mr Cailloux said.
"We remain most concerned about an escalation of the sovereign debt crisis hitting larger economies in the euro area. Markets continue to underestimate the potential disruption via financial transmission channels that such an event could trigger."
Meanwhile, Spain must cut harder and deeper to rein in its finances, the OECD has warned, calling for an overhaul of its labour laws and employment practices. Madrid is already in the midst of harsh austerity measures, but the influential Paris-based think-tank said more must be done. The Spanish economy should be able to shrink its budget deficit from 11pc of GDP last year to the 6pc target next year, the OECD believes.

Friday 29 October 2010

Pimco likens US to 'Ponzi' scheme: Quantitative Easing in the trillions is not a bondholder's friend; it is in fact inflationary.

US authorities are operating a "brazen" Ponzi scheme in government debt by buying trillions of dollars of bonds to stimulate the economy, according to Bill Gross, managing director of Pimco, the world's biggest bond house.

Pimco likens US to 'Ponzi' scheme
Mr Gross said more QE is a huge gamble, but necessary because the US is "in a 'liquidity trap'
In a bid to restart the stalling recovery, the US Federal Reserve is next week expected to unveil a second round of quantitative easing (QE) of as much as $500bn, on top of the $1.2 trillion already completed.
In typically robust comments, Mr Gross said the Fed had run out of other options but warned that more QE would in the long-term mean "picking the creditor's pocket via inflation and negative real interest rates".
"[Cheque] writing in the trillions is not a bondholder's friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme," he wrote on his investment outlook, arguing that creditors have always expected to be paid out of future growth.
"Now, with growth in doubt, it seems the Fed has taken Ponzi one step further," he said. "The Fed has joined the party itself. Has there ever been a Ponzi scheme so brazen? There has not."
More QE is a huge gamble, he said, but necessary because the US is "in a 'liquidity trap', where interest rates or QE may not stimulate borrowing or lending because consumer demand is just not there."
Mr Gross is best-known in the UK for saying gilts were "resting on a bed of nitroglycerine" as a result of the nation's high debt levels. Pimco has since reversed its position on the UK and advised clients to gamble on a British recovery.

http://www.telegraph.co.uk/finance/economics/8090902/Pimco-likens-US-to-Ponzi-scheme.html

Tuesday 29 December 2009

The man in charge of US$1tril assets warns about stocks

Updated: Monday December 28, 2009 MYT 1:20:42 PM
The man in charge of US$1tril assets warns about stocks



NEW YORK: Homes are selling at their fastest clip in nearly three years, the unemployment rate is falling and stocks are up 66 percent since their March lows - the best performance since the 1930s. What's not to like?

Plenty, according to Mohamed El-Erian, chief executive of giant bond manager Pimco.

The investor says the recovery may be gaining steam but is no different than a kid who eats too much candy at one of the birthday parties his 6-year-old daughter attends.


FILE PIX - In this Feb. 12, 2008 file photo, Mohamed El-Erian, Co-Chief Executive Officer and Co-Chief Investment Officer of PIMCO, talks about sovereign wealth funds in New York. - AP
"We're on a sugar high," El-Erian says.

"It feels good for a while but is unsustainable."

His point: This burst of economic activity fed by government spending and near-zero interest rates will soon peter out.

As CEO at Newport Beach, Calif.-based Pimco, El-Erian, 51, oversees nearly $1 trillion in assets, more than the gross domestic product of most countries.

So when he talks, people listen.

What he's saying now:

-Stocks will drop 10 percent in the space of three or four weeks, bringing the Standard & Poor's 500 index below 1,000 - though he's not predicting when.


-The unemployment rate will be hovering above 8 percent a year from now.


-U.S. gross domestic product will grow at an average 2 percent or so for years to come - a third slower than we're used to.

El-Erian and his famous partner, Pimco founder Bill Gross, are watched closely because they've made investors a lot of money over the years.

The Pimco Total Return Fund, which at $203 billion is the world's largest mutual fund, has returned an average 7.6 percent annually over 10 years, after fees, versus 6.3 percent for Barclays Capital U.S. Aggregate fixed income index fund.

The hotshots at Pimco have made money by anticipating big moves in the economy and interest rates way before other investors.

In the depths of the financial crisis last year, for instance, Pimco sold some of its Treasury bonds to panicked investors looking for a safe haven and put the proceeds into government-backed mortgages and bank debt - in time to catch the big upswing in prices of those and other riskier securities this year.

Now Pimco is once again changing tack. El-Erian says people are fooling themselves if they think all the bullish data of late means a strong recovery is in the offing.

So he's buying Treasurys and selling riskier stuff.

His bet: Investors will get scared again and want U.S.-guaranteed debt so they know they'll get repaid.

At Total Return, government-related securities, including Treasurys and corporate debt backed by Washington, comprised 48 percent of the fund's holdings in September.

That was up from 9 percent at the beginning of the year.

One of Pimco's newest funds, the Global Multi-Asset Fund, a hybrid stock-bond offering, is 35 percent in equities now, down from 60 percent earlier this year.

Investors betting on stocks or high-yield bonds are likely to be disappointed, El-Erian says.

Markets for those securities are rallying not because people like them but because they hate the puny yields of safer investments like money markets and feel they have no choice but to buy, he says.

He quips that that makes the bull market as likely to last as a forced marriage.

The danger: If stock and junk bond prices start falling, lots of investors are likely to bail, feeding the drop.

Of course, there are plenty of true believers in the bull who are not buying the El-Erian line.

James Paulsen, chief strategist at Wells Capital Management in Minneapolis, with $355 billion under management, has been pounding the table for months to buy stocks.

Just like in the early 1980s, the recovery will take the form of a "V," he says. The reason: Companies have cut inventories and payrolls to the bone, so just a little revenue growth could translate into a bumper crop of profits.

El-Erian says many of the bulls don't appreciate just how much the government props still under the economy are masking its weakness.

Instead of focusing on the fundamentals today, he says, they're looking to the past, expecting a quick economic rebound because that's what's happened before.

We're trained to think the "farther you fall, the higher you'll bounce back," El-Erian says. "We're hostage to the V."

El-Erian says he learned to be open to many different views on the world (and markets) from his father, an Egyptian diplomat who insisted on reading several newspapers everyday, both on the right and the left.

El-Erian had hoped to become a college professor.

But when his father died, he took a job at the International Monetary Fund to support the family.

He rose through the ranks, eventually becoming deputy director.

In 1999 he joined Pimco, where he quickly made a name for himself with some prescient bets on emerging markets.

One of his biggest wins: selling Argentine bonds in 2000 while they were still popular with investors.

When the country defaulted the next year, the emerging markets fund that El-Erian managed returned 28 percent versus negative 1 percent for the Emerging Market Bond Index.

He eventually left to head the group that manages Harvard University's massive endowment, returning to Pimco in January 2008 in time catch the depths of the financial crisis.

El-Erian says we've probably seen the worst of the crisis but consumers, and not just Washington, need to start spending again for the recovery to really take hold.

He doesn't expect that to happen soon. Like in the Great Depression, Americans are saving more and borrowing less - a shift in attitudes toward family finances that Pimco thinks will last a generation.

That, plus the impact of more regulation and higher taxes, El-Erian says, will crimp growth for years to come.

Whatever the merits of that view, Pimco is not exactly knocking the lights out right now. So far this year, the Total Return Fund has returned 14 percent, impressive in normal times but no better than average for similar funds during the rally, according to Morningstar.

The 19.1 percent return for Global Multi-Asset, which El-Erian co-manages, lags two-thirds of its peers.

El-Erian says he sold equities "too early" but is convinced his view on the market will prove correct - even if it strikes many as a tad too pessimistic.

"I'm calling it as I see it," he says. "I'm not optimistic or pessimistic - I'm realistic." - AP

http://biz.thestar.com.my/news/story.asp?file=/2009/12/28/business/20091228081257&sec=business