In the aftermath of the 2008 financial crisis, Pimco’s co- founder Gross and his former co-Chief Investment Officer Mohamed El-Erian popularized “the new normal” to describe an era of subdued returns, heightened government intervention and increasing clout for emerging nations in the global economy.
Now, five years later, after El-Erian’s abrupt resignation in January, Gross refined that view. While the “new neutral” maintains an expectation for subpar returns, it’s a more stable outlook compared with Pimco’s previous forecast as the risks to the markets are lower. Generating returns is becoming increasingly difficult as central bank policies elevated prices on so-called risk assets, the report said.
Gross, who started the firm in 1971 with two other co- founders and has built one of the best long-term records in the industry, has struggled in the past year to stem record redemptions as his $229 billion Pimco Total Return Fund fell behind peers.
‘Basically Stable’
Total Return, which lost to 63 percent of rival funds over the past year, has returned 0.03 percent in the one month through June 18, beating 60 percent of competitors, according to data compiled by Bloomberg.
The fund will again top its competition this year, Gross said in a Bloomberg Television interview last month, as it sticks to the front end of the yield curve, buys bonds maturing in five years to seven years, and focuses on high-yield debt and risk assets, “which will be not high-returning but basically stable and low-risk and low-volatility.”