Posted on September 28, 2014 in Global Investing

2C75 /%The investment community is astonished by the news that Bill Gross has quit Pimco, where he ran the worlds biggest bond fund for almost three decades, to the much smaller Janus. On the surface, this looks like an enormous coup for Janus. As Richard Leong notes here: the change is like President Barack Obama quitting to become a city manager. However, theres been a whiff of scandal around the Pimco Total Return Exchange Traded Fund. And Grosss performance hasnt been up to its usual standard of late. Heres the latest analysis on Grosss decision to jump ship. JC

* Gross to take over a $13 mln bond fund at Janus

* Janus bond fund has posted loss since May launch

* Janus,  Pimco  funds own big stakes in  U.S. Treasuries

By Richard Leong

NEW YORK, Sept 27 (Reuters) For  Bill Gross, quitting  Pimco s $222 billion Total Return Fund to take over a $13 million fund at  Janus Capital is like resigning the U.S. presidency to become city manager of  Ashtabula,  Ohio, population 18,800.

Gross stunned the investing world on Friday with his abrupt departure from  Pimco. the $2 trillion asset manager he co-founded in 1971 and where he had run the Total Return Fund, the worlds biggest bond fund, for more than 27 years.

Come Monday morning, Gross will join  Denver-based Janus and next month will take over its Unconstrained Bond Fund, which was only organized in May. Janus is an asset management firm once known for picking hot Internet stocks.

For Gross, this is a new slate albeit a small one, said  Jeff Tjornehoj, senior analyst at Lipper Inc, a unit of Thomson Reuters.

Small may be overstating the  Janus fund, at least in comparison with the Total Return behemoth. The relationship between the  Janus Fund and the Total Return fund is the same as that of the population of  Ashtabula with the population of the U.S. 314 million.

At end of August, the Janus Unconstrained fund held only 45 debt issues with 70 percent of its assets in  U.S. government debt. One Treasury issue due June 2016 alone was worth 43 percent of the funds total assets. Most of the bonds have short durations, with the average maturity of just over three years, indicating a generally defensive posture.

The current managers of the  Janus fund are head of fixed income Gibson Smith and portfolio manager  Darrell Walters. Its billed to follow a strategy of all-weather, credit-driven fixed income investing, according to Janus website. (https://www.janus.com)

By comparison, the  Pimco  Total Return fund holds more than 6,000 securities, ranging from plain-vanilla Treasuries to complex credit derivatives. Forty-one percent of its holdings were in  U.S. government-related securities with the rest spread among riskier debt, including mortgage-backed securities and corporate bonds.

LAGGARDS

The two funds do have something in common: weak performance.

While Gross more than earned his Bond King moniker by outperforming rivals and the broader bond market by a wide margin for most his career, his reputation as a shrewd bond picker has taken a hit in the past year or so.

Last year,  Pimco s Total Return Fund suffered its biggest annual loss in almost 20 years, declining by a wider margin than the bond market as a whole, which was buffeted by the U.S. Federal Reserves plans to dial back on its stimulus program.

This year, it has delivered a total return so far of 3.59 percent. Still, that lags the wider market as measured by the benchmark Barclays U.S. Aggregate Bond index, which is up 4.19 percent. The fund is trailing 73 percent of its peers.

The  Janus fund is doing even more poorly, however, stumbling out of the gate since its debut this spring. It lost 0.76 percent in the past three months compared with a 0.48 percent gain for the Barclays Agg, and lags 74 percent of its peers.

Getting this fund to grow will be a good measure of Grosss ability to attract money, analysts said. Gross former  Pimco  colleague and Janus chief executive Richard Weil said on Friday hell look to Gross to build Janus new global macro fixed income business. Until now, Janus is best remembered for its focus on technology stocks during the late 1990s dot-com boom.

He could pull in a lot of money on reputation alone, said Tjornehoj, referring to Grosss long-term record and his widely read monthly investment newsletter at  Pimco .

At Janus, Gross will also be free of the recent distractions that have beset him and his old firm.

A public falling out between Gross, 70, and former heir-apparent  Mohamed El-Erian earlier this year is credited with intensifying investors flight from the Total Return Fund. They have pulled $70 billion from the fund since last May.

On Wednesday, news surfaced that the Securities and Exchange Commission is investigating whether  Pimco  inflated the returns of its $3.6 billion Total Return exchange-traded fund.

Turning around a nascent fund might not be too tall an order, analysts said. For instance, the ETF Gross ran at  Pimco  had performed much better than the far-larger mutual fund, gaining 6.38 percent over the last 12 months versus 5.19 percent for the mutual fund.

Fellow bond maven Jeffrey Gundlach, head of rival firm  DoubleLine Capital, often called the King of Bonds as opposed to Gross nickname of Bond King, told Reuters he expects Gross to perform well at Janus because he isnt managing a lot of money.

Still, if the move to Janus doesnt pan out, analysts are doubtful theres room for yet another reincarnation for Gross.

I dont know if theres a third act for him, Lippers Tjornehoj said. (Reporting by Richard Leong; Editing by Dan Burns and John Pickering)

How PIMCO announced its founders departure:

September 26, 2014, (Newport Beach, CA): PIMCO, a leading global investment management firm, announced that Co-founder and Chief Investment Officer (“CIO”) William H. Gross, has resigned and will leave the firm, effective immediately. The firm has a succession plan in place and its Management Board, comprised of its Managing Directors, will confirm shortly the election of a new Chief Investment Officer. Relevant portfolio management assignments will also be announced at that time.

Said Mr. Hodge: “While we are grateful for everything Bill contributed to building our firm and delivering value to PIMCO’s clients, over the course of this year it became increasingly clear that the firm’s leadership and Bill have fundamental differences about how to take PIMCO forward.”

Mr. Hodge continued: “As part of our responsibilities to our clients, employees and parent, PIMCO has been developing a succession plan for some time to ensure that the firm is well prepared to manage a seamless leadership transition in its Portfolio Management team. Earlier this year, the firm established a new portfolio management leadership structure that reflects our long-held belief that the best approach for PIMCO’s clients and our firm is to evolve our investment leadership structure to a team of seasoned, highly skilled investors overseeing all areas of PIMCO’s investment activities.”

Said Michael Diekmann, Chief Executive Officer of Allianz Group: “Since becoming part of the Allianz Group in 2000, PIMCO has grown enormously and contributed consistently to Allianz’s success. We join our PIMCO colleagues in recognizing Bill Gross for his work over the 43 years since PIMCO’s founding. The management and investment structure put in place in January as well as the thorough succession planning gives us complete confidence in PIMCO’s investment and executive leadership team.”

Mr. Hodge added: “We have built a deep bench of talent with extensive investment and leadership experience, including more than 240 portfolio managers globally, and our outstanding team around the world gives us the scale, talent, expertise and commitment to manage this transition. We will continue to add and promote talent at all levels to help us drive our firm forward. We are energized and fully focused on serving our clients today and into the future.”