Examining Bill Gross's Legacy

Legendary bond investor Bill Gross announced his retirement this week - Morningstar's Sarah Bush and Jeremy Glaser discuss what impact he had on bond investing

Sarah Bush 6 February, 2019 | 3:17PM Jeremy Glaser
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Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. Legendary bond investor Bill Gross announced his retirement. I'm here today with Sarah Bush. She's the director of fixed-income strategies in Morningstar's manager research group to look at his legacy. Sarah, thanks for joining me.

Sarah Bush: Thanks for having me.

Glaser: You've looked at his career over the years, and you really think there's three big pieces of legacy that he leaves. What's the first one?

Bush: The first one is that he really was responsible for pioneering at PIMCO Total Return, a total return focus to bond investing. That means moving away from just thinking about what kind of income a bond investor's going to get in a portfolio, which is obviously very important, but also thinking about that total return experience, when you look at income and what kinds of returns you get over time, make sure you're not eroding principal and that you are taking opportunities to capitalise on value opportunities in the bond market.

Glaser: What's the second major piece here?

Bush: I think the second major piece is that he really was successful at making a transition from a bottom-up corporate bond-picker when PIMCO Total Return was very small, to a world-class macro investor. PIMCO Total Return assets swelled over the time that he was running it, and he was successful at beating - there were exceptions - but for the most part, beating the index and generating really strong returns for a lot of people as those funds grew.

Glaser: The third piece of his legacy really is around the structure of the organisation that he built at PIMCO. Obviously, his departure was marked with maybe not the smoothest transition in the world at first, but how do you think about his legacy at Pimco?

Bush: His departure and some of the nastiness that follows are definitely a blemish on his career. But if you look at what PIMCO is today, he clearly laid a very strong foundation for the growth of the firm and for some of the successes that have followed even in his absence. He was able to build around him a really exceptional bench of top-notch investors, and many of those investors continue to this day.

Glaser: After he left PIMCO, he landed at Janus Henderson. That's where he's retiring from. What impact would this have for, let's say, someone in a Janus bond fund, or how should we think about that piece of it?

Bush: I think the impact overall for Janus is that it probably won't be a very strong impact. When he left, when Bill Gross left PIMCO for Janus, there was a lot of speculation that he would see huge inflows to his fund, and that really didn't happen. The fund struggled to gather assets and his performance was also poor. When you look at other Janus funds that we cover, he was not involved in the running of those funds. One interesting side note of his time at Janus was we did see Gibson Smith, who had built the bond business there from the bottom up, he did depart in 2016. And so, those funds are run by his successor, but Gross's departure would not have an impact on those.

Bush: Thanks very much for having me.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.


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Sarah Bush  Sarah Bush is a senior analyst with Morningstar.