Investors may ask themselves, “Why are we still listening to this guy?”
Proving that even a so-called “Bond King” isn’t immune to performance stumbles, the Financial Times reports that Pimco’s Bill Gross “struggles to turn around a year of uncharacteristic poor performance.” Gross is now ranked behind 92% of his peers, in a year when less than 10% of active bond managers have beaten their benchmark.
In a letter to investors, Gross said this year has been a “stinker” and that “PIMCOs centerfielder has lost a few fly balls in the sun.” PIMCO’s Total Return Fund is now up only 2% for the year so far against a gain of 7% for the Barclays Capital US aggregate bond index.
Desperate times call for desperate measures. The solution? Pimco is going Latin! reports the same Financial Times. The US fund manager is opening an office in Rio de Janeiro next month to service a growing list of Brazilian clients.
A few weeks ago we posted Pimco’s “brilliant” idea of investing in local Brazilian bonds, right in the middle of a currency volatility storm. But now they got even more serious, says an executive of the company.
“These economies will make further gains. In the context of the rest of history, the last 100 years [of western dominance] are extraordinarily untypical. The per capita incomes in emerging markets are still not even close to developed market per capita incomes. So the EMs can literally get 10 times bigger.” “For more than 10 years we have been thinking about EMs and forecasting EM economic performance.” (wow… aren’t they a little late to the game?)
For one thing, they chose a nice beach (Copacabana) to chill after a tough year …
Pimco is said to have been buying Brazilian local bonds massively since 2004 or 2005, and probably this investment is one of the most profitable of the firm's recent history. To make a rogue estimation, IRF-M (a price index of local Brazilian fixed rate bonds) gained 136% since mid-2005 (with very minor drawdowns), plus the BRL appreciated more than 30% against the USD. Of course their average price of investment is much less favourable, nevertheless Brazilian bonds have been a steady source of high returns.
Recent Total Return's underperformance is probably result of Gross' decision of going short duration in U.S. during most part of this year, while Treasuries rallied. Now, with 10y T-Bills yielding 2% per year, I'd probably do the same: move to Copacabana and enjoy the combination of an excellent credit risk and the highest real rates in the world.
The fixed income investment in Brazil local bonds (Real Denominated) was great when the Real was appreciating, what about the last three months and those who got into it? what about the prospects of devaluation , now that Brazilian exports are expensive? Yes the face interest value on Brazilian fixed income is great as long as you live in Brazil and have no BRL/ Dollar risk.
BILL GROSS WILL HAVE TO MOVE INTO EQUITIES. EVEN THE HIGH RATES IN BRAZIL ARE NOT GUARANTEED TO GIVE REAL RETURN RATES. ELECTRIC UTILITIES AND MOBILE TELECOMS ARE THE WAY TO GO WITH DIVIDENDS, GROWTH AND PRICING POWER TO PROTECT AGAINST INFLATION.
bill gross is completely out of his mind going to brazil in 2012, he should have followed sam zell steps, and should be heading to bolivia/peru , not brazil.. brazil was jackpot back in 2003-2008 not now.
i dare to say that if he goes cash or us tnotes he would be more profitable in the coming 12 months.
his long long term view.. he might be right about brazil…
brazil is over… from now on the road is DOWN… wait for europe to start to collpase you will see what happens in brazil…the whole house will fall like a domino. GET OUT OF BRAZIL TODAY.
FX risk is of course larger now than in 2004, it's almost a pure China play. Almost impossible to get the timing right, tough… BRL has been looking overvalued for a long time, but shorts only made money in two or three spikes, the carry is a killer.