(Bill) Gross Analysis. Why the obsession?

People are asking the wrong questions.

Last April, Bloomberg Businessweek tried to answer whether Mr. Gross had a personality problem. He certainly was having trouble getting along with coworkers.

Many theorized that he was feeling the pressure from less than stellar performance in his flagship Pimco Total Return Fund (PTTPX, Financial) which has recently lagged the benchmark index. Worse still, the fund had been seeing steady and significant net redemptions over about a seventeen-month period, costing him prestige while also diminishing PIMCO’s profits.

Bill reportably bailed out voluntarily to avoid the ignominity of being fired from his high level position. Six months after asking if he was a jerk, Businessweek was pondering his future and what it meant for PTTPX shareholders.

The one asset class that was guaranteed to be helped the most by the Fed’s ZIRP (Zero Interest Rate Policies) was long-term bonds. Coupon rates on 30-year treasury bonds had already fallen from above 14% to near 4% even before the Fed intervened in the name of ‘preventing a financial melt-down’.

The trend accelerated like never before during Autumn, 2008, triggered by the Lehman bankruptcy and the badly executed bail-outs of AIG (AIG), Fannie Mae (FNMA) and Freddie Mac (FMCC).

Fixed income had tailwinds of a magnitude never seen before. You’d think that Bill Gross would have been able to generate great returns. Instead, over the decade ended on October 3, 2014, his fund earned a very pedestrian 5.95% annualized.

The much less ballyhooed Loomis Sayles Bond fund (LSBDX, Financial) outperformed PTTPX by a whopping nominal 2.04% per year (34.28% better over the full 10-years). In a world where fortunes rise and fall on a few basis points, it put PIMCO’s offering to shame.

The Loomis Sayles management not only far outshone its benchmark bond index. It even managed to best the 10-year total return figure (+7.81% annualized) of the S&P 500 ETF (SPY, Financial) which had to absorb the major licking taken in 2008.

Following 2008’s interest rate plunge, stocks have been the place to be. Only equity-like junk bonds have been able to stay within shouting distance of the major equity indices.

From near-zero levels bonds have the potential for getting clobbered if rates rise while providing almost no chance for capital gains. Instead of risk-free returns, bonds now appear to be offering return-free risk.

Smart investors should not only be redeeming PIMCO Total Return, they should be moving out of all fixed income before they suffer major losses.

The question is not, “What’s next for Bill Gross?”

The true concern should be, “How will you survive either much higher coupon rates or the continuous destruction of the $US’s buying power due to unrestrained money printing?”

Even the best managed bond fund is unlikely to provide a reasonable answer for that one.

Disclosure: Heavy in stocks, I own no bonds