Beating Gross

The managers have done better than their boss this year relative to peers, albeit in funds with different mandates from Total Return. Ivascyn’s Pimco Income Fund, rated five stars by Morningstar Inc., has beaten 97 percent of its peers in the past month and year, and is ahead of 99 percent over the past five years, according to data compiled by Bloomberg.

Kiesel’s $5.2 billion Pimco Investment Grade Corporate Fund has surged 6.2 percent this year, beating 69 percent of similarly managed funds, bouncing back from last year when it trailed 66 percent of competitors, data compiled by Bloomberg show. Balls’s $3.2 billion Pimco Global Advantage Strategy Bond Fund has advanced 6 percent this year, ahead of 84 percent of similar funds, the data show. That’s an improvement from last year, when the fund was trailing 56 percent of peers.

‘Happy Kingdom’

“It’s a happy kingdom -- the only happier one is 15 miles north in Disneyland,” Gross said. “However, what I tell clients is our objective isn’t a happy Pimco, it’s a happy client. They want results for their money.”

The new openness is a balancing act for Gross, whose own calls haven’t played out this year. His Total Return fund has advanced 3.2 percent in 2014, worse than 57 percent of competitors. He trailed 66 percent of peers last year and 75 percent in 2011. In the past 12 months, the fund has climbed 4.3 percent, ahead of 55 percent of competitors.

Gross is betting on five-year Treasuries, which are more sensitive to changes in the central bank rate than longer-dated bonds, saying markets are overestimating how much the Federal Reserve will raise interest rates. Intermediate-term bonds reflect market expectations for Fed rates of as much as 4 percent, so the notes will outperform when investors realize that the central bank can’t raise borrowing costs much, he argues.

That view is not a popular one in the industry. While many bond managers agree interest rates will be lower, with the federal funds target ranging somewhere between 3 percent and 4 percent by 2018, Gross sees it at just 2 percent.

Goldman, BlackRock

Bond managers from Goldman Sachs Group Inc. to BlackRock and JPMorgan Chase & Co. are shunning shorter-dated bonds on the belief that such debt will suffer when the Fed lifts borrowing costs. Goldman Sachs brought forward its forecast for the Fed to raise interest rates, saying in a July 6 report that the central bank will raise its benchmark in the third quarter of 2015 rather than in the first three months of 2016.

Within Pimco, both Kiesel and Balls have a higher concentration of assets in longer-dated bonds, which have proven to be a far better bet than short-term debt this year. Kiesel has 71 percent of the fund in securities that mature in 5 to 20 years, and Balls has 68 percent in such debt.

The Bloomberg U.S. Treasury Bond Index for 1- to 5-year debt has advanced 0.6 percent this year, compared with a 3.1 percent increase in the corresponding index that tracks 5- to 10-year Treasuries. The index for debt maturing in 10 years and later has surged 9.9 percent this year.

Kiesel, Ivascyn

Kiesel’s investment grade corporate fund, which has 23 percent of its assets in debt issued by banks, benefited in the first quarter from financial-company bonds and debt issued by lower-rated pipeline operators, according to a quarterly report. Balls’s Global Advantage fund was helped by overweight positions in Spain, Slovenia and Italy, as well as a rebound in the Brazilian real and the Mexican peso, a fund report shows.

Ivascyn, whom Morningstar named U.S. fixed-income fund manager of the year for 2013, has benefited from a bet on mortgage-backed securities, especially non-agency debt, according to a quarterly investment report. The Income Fund has 41 percent of assets in mortgage-backed securities and 30 percent in emerging-market debt. Ivascyn’s fund has a 13 percent short position in U.S. government-related securities, meaning he is betting against them. Gross’s Total Return has 50 percent of assets in government debt.

Like Gross, Ivascyn has a higher concentration of assets in shorter-term bonds. He has 56 percent of assets in bonds that mature in less than five years, compared with 53 percent for Gross’s Total Return.