Bill Gross has a problem with today’s ‘total return’ bond funds: ‘They should all change their names’ – iShares 0-5 Year TIPS Bond ETF (ARCA:STIP)

Former “Bond King” Gross invoicewho popularized the “Total Return” strategy in the 1980s, has criticized current proponents of the approach, saying nearly all of these funds have become quasi-“index funds” in the past five years.

Gross, the co-founder of PIMCOsaid that some of these “Total Return” funds are actively managed with the ability to drop in term to maturity, but they all seem to be looking for “index-plus” performance as opposed to “total return” management.

“Maybe they should all change their names to ‘index plus’ to reflect that reality,” he said in a post on his website.

Read also : Short Selling Brokers

Gross said that when he launched a total return fund, his idea was to combine interest income with capital gains from bond prices to produce a “total return” higher than current yields.

Gross said it was working like a charm until earlier this year. “Granted, a secular bond bull market was a huge tailwind, but PIMCO’s Total Return Fund used other non-index strategies to differentiate itself from the pack. “The years 2007-2009 were particularly considered, canceling subprimes like Michael Burry ‘Big Short’ in the hedge fund space,” he said.

This led to PIMCO’s total assets doubling to $2 trillion in the years that followed, Gross added.

Vision Lost: He pointed out that between 2014 and today, some of the strategy’s main proponents have lost their “charter” or total return vision, adding that their year-to-date returns are down between 16% and 18%. %.

Gross also observed that individual investors have been misled. “Would they have preferred to pay 50 basis points for the privilege of outperforming a bond index and losing 15% of their money? he asked.

Suggestion: Gross said these bond funds should change their names or fulfill their original mission of yielding current bond market returns in addition to alpha from unsustainable sources.

The expert also highlighted an ETF in which he invests. “I invested in an ETF that only charges 0.03% fees and is accurately labeled as iShares 0-5 Year TIPS Bond ETF STIP with the NYSE ticker symbol “STIP”. Truth in advertising,” he said.

Some of the total return ETFs have shown negative returns since the start of 2022. For example, the PGIM Total Return Bond ETF PTRB is down more than 18% since the start of the year, while T Rowe Price Total Return ETF EARLY is down more than 19% over the same period.

Read more : Biden could help cut your energy bills as White House says high business prices amid falling input costs are ‘unacceptable’