Bill Gross’s fund sheds 44% of its assets in a wave of investor redemptions and wrong way bets.
As reported back in April in a piece entitled, Bill Gross has been dethroned
due to bad wager bets on a coming bond market which has yet to materialize.
Bill Gross’s bearish call early this year that “it’s the markets last dance” also rattled investors as the Dow continues to bust higher, the NASDAQ keeps breaking record highs and the bond market is showing no signs of panic either.
However, emerging markets are now in a bear market which I forecasted would play out late last year as the central banks start winding down their quantitative easing program and move towards a policy of rate normalization.
“Bill Gross’s fund sheds 44% of its assets in a wave of investor redemptions and wrong way bets”
Bill Gross’s fund sheds 44% of its assets as investor’s patience wears thin when they see losses rack up. Bill Gross’s signature fund at Janus Henderson has been hit with the fund manager’s dreaded redemptions.
Gross’s Janus Henderson Global Unconstrained Bond Fund saw redemptions for a fifth consecutive month, totaling about $232m between June and July, bringing the fund’s total assets to $1.249bn, according to the most recent report from Morningstar.
Janus Henderson Global Unconstrained Bond fund began the year with total assets of $2.217bn. But Bill Gross’s fund sheds 44% of its assets, which amounts to a sizeable $968m, over the year-to-date.
Bill Gross’s fund sheds 44% of its assets and it was during the second quarter of 2018 that Gross’s fund hemorrhaged most of the capital.
All seemed well for Gross’s Janus Henderson Global Unconstrained Bond Fund during January, February (the first quarter of 2018) when global stocks and bonds fell in tandem.
“Bill Gross’s Janus Henderson Global Unconstrained Bond Fund saw redemptions for a fifth consecutive month, totaling about $232m between June and July, bringing the fund’s total assets to $1.249bn”
Bill Gross (known as the bond king on Wall Street) argued that we were now seeing the dynamics of multiple asset bubbles popping as the Fed and its western aligned sidekicks, ECB, BOE, BOJ start tapering (withdrawing liquidity from the market).
Bill Gross reasoned that the biggest bubble of all is the bond market, bearing in mind that western central banks had been purchasing trillions of dollars of bonds since the 2008 financial crisis to keep the bond market propped up and prevent the collateral chains from blowing off.
Bill Gross argued that as the central banks withdraw their pillar of liquidity that will deflate bond market prices, thereby causing a deep bear market in bonds.
“Bill Gross ’s bearish call has yet to materialize and is showing losses”
The end outcome thus far has been Bill Gross’s fund sheds 44% of its assets. Bill Gross ’s bearish call has yet to materialize and is showing losses.
However, Bill Gross’s view that the bond market could be the biggest bubble could still hold water, bearing in mind that the biggest experiment in the history of finance has resulted in trillions of dollars of central bank money being pumped into asset prices, particularly bonds.
Moreover, central bank tapering(tightening of liquidity) has already caused the asset bubble to burst in emerging markets. Indeed, emerging markets are already in a bear market (or correction territory).
Emerging markets began the year tightly correlated with the S&P 500. But that relationship has broken down as it became clear that central banks were signaling the end of monetary accommodation.
Moreover, trade tensions ratcheting higher has also resulted in a run on emerging markets.
So Bill Gross’s view of a bear market playing out as a result of central bank tightening has played out, but it has been in emerging markets.
“Maybe the money manager was making the mistake that we can all easily make, which is not looking at the bigger picture and all the other moving parts”
Bill Gross’s fund sheds 44% perhaps because the dethroned bond king was forecasting in a paradigm. Maybe the money manager was making the mistake that we can all easily make, which is not looking at the bigger picture and all the other moving parts.
For example, perhaps it would have been more profitable to examine what impact central bank tightening would have on other markets, namely emerging markets.
Then develop the thinking one step further. If central bank tightening is going to have an impact of EMS and trigger capital outflows then where is that capital going to flow next? Forecasting where you think capital will flow to next is similar to forecasting the next bull market.
So the S&P 500 drifted back toward record levels, while the EEM ETF has fallen to lows not seen in a year which suggests that capital has rotated out of emerging markets into US markets. Moreover, it that tend is likely to continue going forward.
Bill Gross’s fund sheds 44% and it is a reminder to traders investors not to overplay your bearish plays.
Nevertheless, what if Bill Gross’s bearish forecast actually plays out in the long run?
Perhaps the collapse of emerging markets is a circuit-breaker, an early warning to investors/traders of what could be installed for the wider market moving forward.
Despite all the talk of the central bank’s tapering the ECB is still officially purchasing 30 billion dollars of assets per month and the Fed’s massive balance sheet of approximately 4.2 trillion USD of assets has still not been sold. Put another way, the central bank’s great unwind has still to play out and when it does it could indeed be the pin that burst all the asset bubbles.
So Bill Gross’s fund sheds 44% due to heavy loss and redemptions is a reminder to investors/traders that the market can stay irrational longer than any of us can stay solvent. Bill Gross ’s bearish view can turn out to be spot on in the long run but who can stay solvent long enough to wait, particularly when the central bank liquidity cannon is on the other side of the bet.