by Miles Weiss

The plunge in oil prices has claimed another prominent victim.

Bill Gross’s $US1.46 billion Janus Global Unconstrained Bond Fund trailed its benchmark in the fourth quarter of last year primarily because it had plowed about five percent of net assets into debt issued by U.S. Russian and Brazilian energy companies, according to a quarterly overview published on the Denver-based firm’s website. Those bonds and emerging market sovereign debt that Gross agreed to insure were all hit by the 42 percent collapse in crude prices during the period.

Energy sector exposure detracted the most from the fund’s performance, Janus said in the fourth-quarter commentary, adding that exposure to U.S. dollar-denominated Russian and Brazilian corporate bonds also hurt. The sharp decline in crude oil prices along with the declines of the countries’ currencies drove underperformance here.

The commentary provides the first detailed insight into how Gross used his flexibility to run the Janus fund, which can invest across bonds worldwide and seeks to outperform the three- month London Interbank Offered Rate, or Libor. Before joining Janus, Gross was best known as manager of the Pimco Total Return Bond Fund, a traditional fund benchmarked to the Barclays US Aggregate Index.

Janus Unconstrained declined 0.56 percent during the fourth quarter after including dividends, compared with the 0.06 percent return of the three-month Libor. Pimco Total Return advanced 1.32 percent in the same period, as the Barclays US Aggregate index rose 1.79 percent.

Gross relied heavily on corporate bonds to boost yields and bought short-duration debt that matures in one to three years, a move designed to protect against volatility and rising interest rates. Among corporate credits, he bet mainly on crossover bonds, those that are rated just above or just below investment grade. Bonds issued by companies that are in the process of strengthening their balance sheets have yet to be recognized by investors, Janus said.

During the fourth quarter, Gross invested about 2.5 percent of net assets in debt issued by U.S. energy companies such as Marathon Petroleum Corp. Transocean Inc. Sabine Pass LNG LP and Kinder Morgan Finance Co. As of Dec. 31, another 2.4 percent of assets were invested in dollar-denominated debt issued by Russian and Brazilian energy companies, including Petroleo Brasileiro SA, Gazprom OAO, Lukoil OAO, and Rosneft OAO.

Under Gross, Pimco Total Return also held investments in some of these same companies, including Gazprom and Petrobras. although in smaller proportions. The fair value of these holdings, about $2.2 billion as of Sept. 30, equaled just 1.1 percent of Pimco Total Return’s net assets as of Sept. 30, according to regulatory filings.