For decades, envious competitors have carped that Pimco's legendary Bill Gross uses the public airwaves to talk his book, or portfolio. Others have complained that Gross' pronouncements are rarely right, yet his funds make money and are among the best in the business.
It raises the issue of whether he is saying one thing and doing something else-perhaps to lead the lemmings astray. Or maybe he is just hedging his bets.
So the news that he is launching an active ETF that will be managed in a style very similar to his mammoth Total Return funds raised more than a few eyebrows. That's because Gross will now have to post his holdings every day.
Two weeks ago I met with MFS chairman and former Fidelity Investments president Robert Pozen, who predicted that active ETFs will not take off. Most portfolio managers, Pozen remarked, dislike having to post their holdings on a quarterly basis and they would refuse to do it daily.
Now the entire world will be able to see what Gross is doing every day. Anyone who knows Pimco knows that the organization never does anything without weighing the costs and benefits very carefully.
So what did they conclude? Perhaps that there are many Pimco Total Return wannabes and that they will follow Gross like lemmings on a daily basis, duly mimicking every tiny shift in the portfolio's composition, further driving up his holdings.
But Pimco Total Return is a giant fund that, because of its size, takes gargantuan positions that are not always easy to unload, despite the liquidity in many fixed-income sectors. So it would seem to raise a potential problem-namely, that if Gross wants to dump a particular sector, say mortgage-backed securities, the little sheep following him could unwind their positions and get out of the burning theater a lot faster than he could. We'll see.
Ten years ago, Gross was generous enough to grant me an interview for the premier issue of Financial Advisor, so I may have some bias. In that interview, I raised the issue many of his competitors have whined about-that he was frequently wrong in his investment outlook and it rarely hurt his portfolio. His response was: That's the secret.
More than most investment managers, Gross is smart enough to know he can be wrong. But I think there are a few other factors at work here that have more to do with playing the game than talking one's book.
For the sake of comparison, I'd cite a fascinating chapter about H.L. Hunt in Bryan Burroughs' book The Big Rich. In the 1930s, Hunt was to the Texas oil business what Gross is to the bond market. When Hunt would discover massive oil fields in one area of a Texas county, he'd immediately send his boys over to a less promising part of the county and have them start putting in bids, or "pretend" bids, for leases there.
All the little lemmings would immediately follow, allowing Hunt to buy the leases on the elephant fields at bargain prices. More than a few Texas oilmen ended up suing Hunt repeatedly much like Facebook's Winklevoss twins.
There is also another factor here. According to Pimco CEO Mohammed El-Erian, Gross often makes big bets on derivatives and holds them for a few hours. In cases like that, competitors wouldn't be able to see what he was doing.