Gross criticises large firms in first investor address from Janus
Speaking to investors for the first time in his new role at Janus Capital, Gross (pictured) was quick to advocate the benefits of working in smaller teams.
When asked what management style he preferred, Gross said “a team has to be relatively small in order to make effective decisions. Larger organisations with a kind of egalitarian voting system develop a mush in the middle with portfolios that don’t really do much.”
Gross also advocated for a commitment to clients, saying “you have to be aware of those we are serving, of their plight. Unless you have a client in mind in addition to your fierce competitors, it ultimately breaks down.”
The former PIMCO star manager’s departure from the firm he co-founded and his multi-billion dollar Total Return fund, rocked the bond markets last month. A statement from PIMCO at the time suggested Gross may have locked horns with senior management over how the company was being run, pointing to “fundamental differences about how to take PIMCO forward.”
Meanwhile, Gross was also asked about the differences in managing millions instead of billions. He stressed the advantages of managing lower assets, particularly their adaptability and liquidity.
Gross said: “The biggest difference is flexibility; you can’t dismiss the advantages of large portfolios, but the idea generation is much more nimble and the street will not always follow you when you manage a smaller portfolio.”
Gross discussed the particular advantages of his new company’s smaller size.
“It is human nature to want growth, so I am hopeful that Janus will, but the current size makes for the ability to put together a better portfolio and change as circumstances change.”
Gross’ new fund will differ from PIMCO’s Total Return as it is unconstrained, which he said will serve investors well in current markets.
“The bull markets for bonds could not continue. However, you can produce returns from certain bonds that are not duration or maturity connected, as you can avoid the misery of taper tantrums.
“Unconstrained says you have more flexibility, variability and defensiveness in terms of duration.”
Gross particularly endorsed investing in Mexico, describing the market as “an adult not a teenager”, with emerging markets a particular opportunity as “credit volatility risk can be mitigated by looking outside of the US.”
Money has already begun to follow Gross to Janus Capital, with net assets in his Global Unconstrained Bond fund rising from $13m to $79m by the end of September. By contrast, the PIMCO Total Return bond fund shed a net $23.5bn in September, the 17th successive month of withdrawals.