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Bill Gross will be glad to see the back of 2013, it was a pretty bruising year by his standards. With his flagship $244 billion Total Return Fund posting a loss of 1.92% in 2013, following a 10.4% gain in 2012, its biggest annual loss since 1994, according to data from Morningstar Inc.
That marks only the third time since its inception in 1987 that Total Return has posted a loss. With previous losses occurring in 1994 when it lost 3.58% and 1999 when it lost 0.28%, according to data from Morningstar.
Most of the damage was done in the second quarter when the fund suffered a record loss of 3.6% after Treasuries and other fixed income assets collapsed on fears the Federal Reserve would soon pull back bond buying.
Total Return had a 37% exposure to Treasuries at the end of May, making it the fund’s largest holding, according to data released on the Pimco website last year and compiled by Reuters. The fund’s exposure to U.S. government debt remained high throughout the year despite the sell-off in Treasuries, and was at 37 percent at the end of November.
Despite this years poor performance investors are unlikely to be concerned. Gross has handed investors a positive return of 6.46% on average in the past 15 years through the end of 2012, beating 5.23% on the benchmark and outpacing 96% of its peers, according to Morningstar.
Todays Other Top Stories
WSJ: – Yields on Puerto Rico debt hit high. – Puerto Rico is struggling to convince investors and credit-rating firms that it is on the path to financial health amid rising borrowing costs and fears over a potential downgrade of its debt.
New York Life: – Top five municipal market insights for 2014. – 2014 should bring: Lower issuance. Net negative supply. Increased demand and increased taxes, hitting taxpayers in April, and still not priced into the market. Along with increased insurance company demand for attractive yielding investments.
InvestmentNews: – Gridlock is good for municipal bond investors. – For the $3.7 trillion municipal bond market, Washington’s political divide may be a good thing.
BusinessInsider: – Municipal bonds: Back to basics in 2014. – Municipal bonds faced some ups and downs in 2013, falling victim to Fed taper speculation and negative press that dogged Detroit and Puerto Rico and understandably scared off some investors. Sheila Amoroso and Rafael Costas, co-directors of our Municipal Bond Department, note that while there are still some issues to work through and even despite the sometimes-shocking headlines, not all news in the world of munis is bad news. They say investors need to get back to the basics and re-examine the reasons for investing in municipal bonds.
LearnBonds: – The biggest market risk for 2014. – What is the biggest market risk of 2014? John Mason takes a look at what could go wrong with the bond market in 2014.
ZeroHedge: – Bonds close 2013 at 30-month high yields. – The Treasury bond has now closed for 2013 with the (highest duration) 30Y Treasury Future down 13% for the year. Of course, those invested in fixed income are not all long the long-end but across the whole complex yields are at highs.
Reuters: – U.S. yields finish year near 2-1/2-year high. – U.S. 10-year Treasury yields ended 2013 near their 2-1/2-year high on Tuesday, capping the third worst year for U.S. government debt in four decades, according to Barclays data.
WSJ: – Treasury yields poised to resume upward march in 2014. – Investors in the $11.8 trillion market for U.S. government debt are bracing for a further rise in interest rates.
WSJ: – U.S. Treasury bonds strengthen, recoup earlier price losses. – U.S. Treasury bonds strengthened and clawed back earlier price losses as yields near the highest level in more than two years lured in fresh buyers.
FT: – 2014 outlook: Sugar high. – ‘Credit Cassandras’ say strong demand for risky bonds is a sign of frothy markets.
Reuters: – Funds shrug off default risk in dash for emerging company bonds. – When Brazilian oil firm OGX tried to tap bond markets for $2 billion in 2011, investors were ready to hand it $5.5 billion. Two years on, OGX is in default and the debt trades at less than 10 cents of its original face value.
FT: – Insurers make leap in cutting overheads. – A historic change in the way insurance companies protect themselves against natural catastrophes has helped the industry secure the biggest drop in reinsurance prices in 15 years.
Royal Gazette: – A storm that would wipe out more than half of cat bond principal. – More than half of the money invested in catastrophe bonds could be wiped out by a single hurricane, according to catastrophe modelling experts AIR Worldwide.
Larry Swedroe: – Sell, don’t buy, floating-rate note funds. – Every time interest rates are low, investors begin to make mistakes – engaging in activities that they otherwise wouldn’t undertake – such as stretching for yield by taking on credit risk – if rates were at more “normal” levels like 4 or 5 percent. With Treasury yields having been at extremely low levels for several years now, and money market accounts paying virtually nothing, many investors haven’t been able to resist the siren call of higher yields, especially if they can get them without taking term risk (the risk of rising interest rates). Unfortunately, they often forget that yield and return aren’t synonymous.
Motley Fool: – The “Great Divergence” between stocks, bonds, and gold. – In a fitting tribute to the strength and consistency of this year’s bull market, both the S&P 500 and the narrower Dow Jones Industrial Average closed out 2013 at all-time highs, with annual price returns of 29.6% and 26.5%, respectively. The surge in stock prices has been broad-based, too – the small-cap Russell 2000 index put up even better numbers, rising 37% (it also closed at a record high on Tuesday.) For the S&P 500, that is the benchmark index’s best performance since 1997; from its financial crisis closing low on March 9, 2009, it has now risen 173%.
MarketWatch: – Bond fund and ETF types that deserve your money now. – The death of a decades-strong bond bull market may be exaggerated, but fixed-income investors aren’t waiting to find out.
ETF Trends: – Tax-exempt muni ETFs dodge changes in election year. – Political stalemate on Capitol Hill has frustrated the markets, but for municipal bond exchange traded funds, the bickering weakens any chance of a tax-code overhaul in tax-exempt munis.
Philly.com: – Odds are that bond rates will rise in ’14. – Do you care about the bond market and interest rates – that is, where are bond prices going and when will rates start rising? Then it’s time to start shifting bond portfolios. Go defensive, because odds are that rates will rise in 2014.
About.com: – 2013 bond market performance: The year in review. – The bond market received more than it share of headlines for its poor performance in 2013, as concerns that the U.S. Federal Reserve would taper its “quantitative easing” program caused investment-grade bonds to suffer their worst year since 1994. This also represented the second-worst year for investment-grade debt since 1980, the first loss since 1999, and only the third time in 34 years the asset class finished the year in the red.
FT: – Bond investors braced for new year shock. – Bond investors are braced for a new year shock, with annual statements likely to show 2013 was the worst year for bond returns in well over a decade.
InvestorPlace: – Portfolio diversification failed in 2013 — or did it? – The common refrain in the 2008-2009 credit crisis was that “correlations went to one” as seemingly everything dropped in price — U.S. stocks, foreign developed stocks, emerging market stocks, corporate bonds, mortgage-backed bonds, convertible bonds, commodities, real estate — the list goes on. Investors felt portfolio diversification had failed because, well, they lost money.
There is finally some real value at the long end of the curve. Makes sense to reduce equity exposure and add some flatteners.
— Ed Bradford (@Fullcarry) January 2, 2014
#muniland trading vol better than Tue but still low. down 37% from average to $1.5bln traded. Foothill-Eastern, Cali and Mass most active
— Taylor Riggs, CFA (@RiggsReport) January 2, 2014