August has not been kind to Bill Gross. His fund took a spanking on Black Monday, he saw investors pull out funds for the third month in a row, and judging from recent photos of him, his moustache may have ran away as well.
Unfortunately for the fallen bond king, that appears to be the least of his worries:
“Bill Gross’s Janus Global Unconstrained Bond Fund suffered its second day of declines in its net asset value on Tuesday, wiping out gains for the year, according to fund-research firm Morningstar Inc on Wednesday.”
According to Reuters, the fund’s 0.42% decline Tuesday took his fund’s performance down to a negative 2.63% for 2015, placing him behind 92% of his peers in Morningstar’s non-traditional bond fund category and dealing another to blow to his already wavering reputation.
The culprit appears to be his fund’s massive exposure to high-yield debt, which is exactly what hedge funds were hoping to short in case of an event such as Black Monday. As Todd Rosenbluth, S&P Capital IQ Global Markets Intelligence director of ETF & Mutual Fund Research, told Reuters:
“Looking to their asset allocation as of July 31, the fund has 6 percent or so exposure to equity-related securities and has 20 percent in high-yield bonds while another 14 percent in non-rated bonds…This is an approach that will not benefit from a flight to quality of investment-grade corporates and Treasuries.”
Ironically, Gross publicly declared this year that he would be shorting the Shenzhen Index, a trade that would’ve netted him considerable amounts of money had he chosen to actually execute it.
That was the second prescient call he made this year that he surprisingly didn’t follow through on, a fact, given his current situation, that doesn’t sound funny anymore.
Photo: Scott Maxwell