Bill Gross vs. Jeffrey Gundlach: 2013 Edition

 

knockout2013 has been a wild year so far for bond investors, with rates hitting two year highs in yesterday’s trade.  While its easy to make money in bonds when interest rates are falling, the true test of a bond fund manager is if they are able to earn a return for their investors, or at least minimize losses, when interest rates rise sharply. Let’s have a look at how two of the most well known bond managers in the world, PIMCO’s Bill Gross and DoubleLine Capital’s Jeffrey Gundlach, have performed so far in 2013.

 

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While both managers participate in other funds as well, they are known for their lead portfolio manager positions on their flagship funds. For Bill Gross that is the PIMCO Total Return Fund and for Jeffrey Gundlach that is the DoubleLine Total Return Fund.

Jeffrey Gundlach 2013 Performance

Introducing first, fighting out of the blue corner, is DoubleLine Capital’s founder and CEO Jeffrey Gundlach.  After acting as one of the top performing bond fund managers in the world at the Helm of the TCW Total Return Fund, Gundlach formed his own firm Doubleline Capital in 2010.

DoubleLine Total Return Fund Year To Date Returns: -.89%

While he has a loss for the year, Gundlach has outperformed his benchmark (the Barclays US Aggregate Bond Index) by 1.79% and the average intermediate term bond fund by 1.51%.  That put’s Gundlach in the top 6% of intermediate term bond fund managers for 2013 according to Morningstar.

Bill Gross 2013 Performance

Introducing next fighting out of the red corner is PIMCO founder and CEO Bill Gross.  His PIMCO Total Return fund is the largest mutual fund in the world with more than $260 Billion under management.

PIMCO Total Return Fund Year To Date Returns: -2.91%

This is a pretty stinging loss for the reigning champion, which is down more than three times as much as Gundlach’s Total Return Fund over the same time period.  Gross’s Total Return fund has has underperformed its benchmark  (the Barclay’s US Aggregate Bond Index) over this time period by .23% and the average intermediate term bond fund by .51%.  This puts him in the bottom 1/3rd of intermediate term bond funds for 2013 according to Morningstar.

How Did Gundlach Knockout Gross in 2013?

One word: Duration.  Duration measures the interest rate sensitivity of a bond meaning that, all else being equal, the higher the duration of a bond fund, the more it will lose when interest rates rise.   You can learn more about duration here.

As we talked about earlier this year when we ranked Gundlach’s DoubleLine Total Return fund the top pick in our core bond fund category in 2013, Gundlach has kept the duration his fund much lower than Gross, and was thus not hurt as badly when interest rates rose.

A note on fund size

Unlike in the ring, size in the mutual fund world is generally a disadvantage.  With this in mind, one could argue that Bill Gross is at an extreme disadvantage to Gundlach.  With over $240 billion in assets Gross’s total return fund is around 6 times the size of Gundlach’s DoubleLine Total Return fund.

Those who follow the bond market closely will likely bring up the fact that Gross also manages the PIMCO Total Return ETF (BOND) which has a mere $4 Billion under management.  However, although performance has diverged in the past, BOND is supposed to be simply an ETF version of the PIMCO Total Return Mutual fund and therefore likely employes a very similar strategy.

We think Gundlach will continue to outperform Gross for the rest of 2013 and are therefore reiterating the DoubleLine Total Return Fund as our top core bond fund pick for 2013 and beyond.   What do you think?

 

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Comments

  1. John D. says

    “What do you think?”

    Generally agree, with this exception: Gross’s OEF and ETF are not the same fund. Same general strategy, but in the ETF, he’s able to populate it with his best ideas, and trade at a significant-enough level of the portfolio to do what he does best — wring a bit of capital appreciation out of this asset over here, and that one over there. He can’t do that in a fund with $200B-plus in AUM.

    The proof of the pudding is in the returns: since BOND’s inception, it’s up cumulatively 3.7% to PTTRX’s 1.5%. With a return difference that significant, it’s not the same fund.

    • David Waring says

      Hi John,

      Thanks for reading and for the comment. Its a fair point that you make. I suspect that a large portion of the performance difference is due to the early out performance of the ETF where Gross did not have to deal with legacy positions. I would need to dig a little deeper to confirm this, but at a glance you can see that the YTD returns are much closer in line with one another. Best Regards, Dave

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