(Corrects 7th paragraph to say Gross expected low Fed Funds
rate until at least 2016)
By Sam Forgione
NEW YORK, March 4 Bill Gross, manager of the
world's largest bond fund at Pimco, said Tuesday that risk
assets should outperform cash this year and post higher returns
if central banks can convince investors that easy money policies
are stimulating growth.
"If global central bankers can convince investors that
their abnormal policies can recreate a semblance of the old
normal economy, then risk assets at the outer edges of our
circle will have higher future returns than otherwise," Gross
said in his monthly letter to investors, titled "The Second
Gross, co-founder and co-chief investment officer at Pimco,
said that risk assets such as stocks and high-yield bonds are
"not necessarily mispriced" despite central banks' easy money
policies that have kept interest rates artificially low.
Gross said that the U.S. Federal Reserve - which has kept
its benchmark short-term borrowing rate, the Fed Funds rate,
near zero since late 2008 and bought trillions of dollars in
bonds to help stimulate the economy - will need to convince
investors that its recent push for more "qualitative" guidance
Gross cited comments from St. Louis Fed President James
Bullard, who said in mid-February that he expected the Fed to
drop its economic thresholds and have to "make more qualitative
judgments" on when to tighten policy.
Gross cautioned investors to "longer-term consequences,"
however, and said that liquidity in corporate bonds will be
"challenged" as the Fed winds down its quantitative easing. He
also said assets may be mispriced if inflation emerges.
In recent months, Gross has recommended investors buy
short-dated bonds on the premise that the Fed will keep the Fed
Funds rate between 0.-0.25 percent until at least 2016.
The Fed is taking the first steps towards a more normal
footing, however. The central bank trimmed its bond buying by
$10 billion in each of the past two months and expects to raise
interest rates some time next year as long as the economy
continues to improve.
Gross's flagship Pimco Total Return Fund posted $1.6 billion
in outflows in February, reducing the fund's assets to $236
billion, according to data from Morningstar. That marked the
fund's 10th straight month of outflows.
Investors pulled $41.1 billion from the fund last year,
marking the biggest annual outflows from any mutual fund in
history, according to Morningstar. The fund lost its title as
the world's largest mutual fund to the Vanguard Total Stock
Market Index Fund last October.
The fund rose just 0.52 percent last month, trailing 71
percent of its peers according to preliminary Morningstar data.
The performance also slightly trailed the 0.53 percent gain of
the benchmark Barclays U.S. Aggregate bond index.
The Pimco Total Return Exchange-Traded Fund, an actively
managed ETF designed to mimic the strategy of the flagship
mutual fund, posted outflows of $42.6 million in February. That
also marked the 10th straight month of withdrawals from the ETF,
which has $3.5 billion in assets, according to Morningstar data.
Pimco's succession plan has been in the spotlight since
January's stunning announcement that Mohamed El-Erian, its chief
executive officer and co-chief investment officer, was
The investment firm has named Dan Ivascyn, Andrew Balls,
Mark Kiesel, Virginie Maisonneuve, Scott Mather and Mihir Worah
as deputy chief investment officers.
Gross has called the collection of six new deputy chief
investment officers a "significant improvement" from Pimco's
previous structure, which concentrated nearly all investment
strategy decisions on the shoulders of Gross and El-Erian.
The DoubleLine Total Return Bond Fund, a Pimco
competitor run by Jeffrey Gundlach, attracted $210.5 million in
new cash last month, marking its first inflows in nine months
and bringing assets in the fund to $31.4 billion.
Pacific Investment Management Co, a unit of European
financial services company Allianz SE, had $1.91
trillion in assets as of Dec. 31, according to the firm's
(Reporting by Sam Forgione; Editing by Chizu Nomiyama and Nick