Ever since his acrimonious departure from Pimco in September 2014 (not to mention his messy divorce), former bond king Bill Gross has had a very difficult time rebuilding his reputation – and AUM – and after a series of dismal wrong way bets in the bond market, Bill Gross’ Janus Henderson Global Unconstrained fund has seen harrowing redemptions which one month ago we reported that just in the first half of the year, amounted to $580 million as a result of the worst performance of his peer group in that period, as the unconstrained fund slumped 6.3% this year through June.
As we noted at the time, June was the fourth straight month of withdrawals for Gross’s bond fund and with AUM tumbling from over $2 billion at the start of the year to just $1.48 billion in June, a quarter of Gross’ AUM has been withdrawn by anxious investors in just the past 6 months alone.
This is because Gross’s unconstrained fund – which unlike a traditional bond fund significant liberty in what to invert and relies on derivatives and options-based strategies to boost returns – was ranked dead last in first-half performance among 44 peers in its Bloomberg category.
Fast forward one month when Bloomberg reports that just months after its AUM hit an all time high of just over $2.2 billion in early 2018, investors pulled money from Bill Gross’s bond fund for the fifth consecutive month in July, reducing its assets under management to the lowest since November 2014. Last month, the Janus Henderson Global Unconstrained Bond Fund suffered more than $200 million in redemptions, which brought its assets to $1.25 billion, or nearly one half of its all-time high AUM of $2.24 billion reached back in February.
According to Bloomberg calculations, the disappointing July performance has brought Gross’ losses to 7% YTD – “one of the toughest slumps in a storied career that dates to 1971, when he co-founded Pacific Investment Management.”
The reason for the continued slump: a misplaced bet that rates on U.S. Treasuries and German bunds would converge, a position the fund later scaled back.
“The strategy has been to be short the German bund and long U.S. Treasuries,” Gross explained his underperformance to Bloomberg TV on June 1. “That was the basis for the bad day and the bad trade.” However, with 10Y yields refusing to move higher amid fears of a broader trade war, record Treasury shorts – such as Gross – have continued to get pummeled by the relentless flattening of the yield curve.
As losses at the Gross fund continue to mount and with 50% of the AUM now gone, some have wondered if it is time for the storied bond investor to call it a career.
Meanwhile, somewhere Jeff Gundlach – whose DoubleLine fund has also seen its share of pain in 2018 – is smiling.