(Adds additional comments from letter)
By Sam Forgione
NEW YORK, July 30 Bill Gross, manager of the
world's largest bond fund, said Wednesday that income, rather
than capital gains, would drive future investment returns as a
result of low global economic growth.
"Capital gains from almost all asset classes are approaching
dusk. Low but relatively dependable income will be the market's
future driver," Gross, the chief investment officer of Pimco,
said in his latest monthly letter to investors titled "Goodnight
Income is the interest paid on an asset, whereas capital
gains are increases in the asset's price.
Gross, who predicted in May of last year that the roughly
30-year bull run in bonds had likely ended, said Wednesday that
since bond yields were headed higher while global economic
growth would remain low, gains in asset prices would be tough to
"So as yields have bottomed and are now expected by the
markets to gradually rise, it's down to growth, and growth is a
question mark," Gross said. He said a lack of "aggregate demand"
and an overabundance of "aggregate supply," partly as a result
of over-indebted consumers, would continue to weigh on global
Gross' views are closely watched because his flagship Pimco
Total Return Fund is the world's biggest bond fund, with $225
billion in assets.
Pacific Investment Management Co. altogether had $1.97
trillion in assets as of June 30, according to the firm's
Gross, whose flagship fund had a 47 percent exposure to U.S.
government-related assets in June, said high-quality Treasury
and corporate bonds were "fairly priced, but not cheap." He
reiterated that the Federal Reserve would likely not raise
interest rates until mid-2015, and said that investors should
own bonds and "an average proportion of stocks."
Gross' comments are in line with Pimco's "New Neutral"
outlook for the global economy, which the firm introduced in
May. New Neutral suggests the global economy is transforming
from a post-financial-crisis recovery period called the New
Normal in 2009 toward stability characterized by modest economic
growth over the next three to five years.
Gross told Reuters on July 18 that the yield on the
benchmark 10-year U.S. Treasury note belonged in the
2.50 percent to 3 percent range "now and for the next few years"
if the Fed remains accommodative.
The 10-year yield was at 2.55 percent on Wednesday ahead of
a statement from the Fed due at 2 p.m. ET (1800 GMT) following
the central bank's latest two-day policy meeting.
Gross' Total Return Fund is up 3.62 percent so far this
year, trailing 77 percent of its peers, according to data from
Morningstar. The Newport Beach, California-based Pimco is a unit
of European financial services company Allianz SE.
(Reporting by Sam Forgione; Editing by James Dalgleish and Dan