Why Bill Gross Unconstrained Bond Fund lost Money?

Two months ago, Bill Gross, the 74-year-old billionaire who co-founded Pacific Investment Management Co, suffered the steepest loss in his Janus Henderson Global Unconstrained Bond Fund since its inception in 2014.

Morningstar in 2010 named him “Manager of the Decade” in fixed income, lauding his performance and stating that “no other fund manager made more money for people.”

The tables have turned on him in an almost inconceivable way – around the time of May – the period where the Italian bond sell off, the fund suffered steep losses.

Since he took over management of the Janus unconstrained fund in October 2014, it has delivered a negative total return. By contrast, the $161 billion Vanguard Total Bond Market Index Fund has gained 6.3 percent, and the $71 billion Pimco Total Return Fund, which Gross used to run, has earned 8 percent as shown:

What happened?  Gross bet big that Treasury and bund yields would converge. Instead, the spread widened.  The prospectus on Janus’s website says the “fund’s average portfolio duration may range from negative 4 years to plus 6 years.” But around the time of May’s steep losses, the effective duration was minus 4.58 years (it’s minus 3.14 years as of June 30)

Reference

Bloomberg, Brain Chappatta, 2018-08-02, “Bill Gross Is Ahead of the Pack in Losing Money”