Bill Gross of PIMCO may have missed the mark on his bond call in 2011, but his firm is still one of the top ten axes in the financial markets globally. After launching the PIMCO Total Return ETF (NYSE: TRXT), Gross’ monthly investor outlook calls for a defensive posturing. The report today actually sounds like a promotional tool for this new total return ETF.
- TRXT seeks to provide attractive risk-adjusted returns in all market environments by maintaining a conservative, quality orientation from a portfolio of intermediate-term bonds. At the same time, it draws on multiple sources of value and opportunity to help manage overall risk and increase total return potential.
Gross is sounding the “play defensive” horn for investing in a low rate environment. The PIMCO defensive strategy playbook noted, “Recognize zero bound limits and systemic debt risk in global financial markets. Accept financial repression but avoid its impact when and where possible. Emphasize income we believe to be relatively reliable/safe; seek consistent alpha.”
In Mr. Gross’ monthly outlook for March has a key observation that the investing community is suffering from with such low yields. Gross noted, “Low yields, instead of fostering capital gains for investors via the magic of present value discounting and lower credit spreads, begin to reduce household incomes, lower corporate profit margins and wreak havoc on historical business models connected to banking, money market funds and the pension industry. The offensively oriented investment world that we have grown so used to over the past three decades is being stonewalled by a zero bound goal line stand. Investment defense is coming of age.”
The end of the report noted the PIMCO Defensive Strategy for 2012 and beyond…
- A. Emphasize income we believe to be relatively reliable/safe.
- B. De-emphasize derivative structures that are fully valued and potentially volatile.
- C. Combine A and B along with security selection to seek consistent alpha with admittedly lower nominal returns than historical industry examples.
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