Pimco Total Return fund manager Bill Gross apologized to investors Friday for what he called “a very bad year.”
In a letter posted on Pimco's website entitled “Mea Culpa,” Gross concedes that he had made significant errors in judgment over the course of 2011. Most seriously, Gross avoided acquiring U.S. Treasury bonds, saying publicly at the time that the return didn't justify the investment. As it turned out, U.S. Treasuries were among the biggest outperformers of 2011.
“Pimco’s centerfielder has lost a few fly balls in the sun,” Gross wrote.
“My well-advertised aversion to Treasuries was a little overblown in the press — the fund had positions in German Bonds and Canadian Treasuries to counter the U.S. underweight, but not enough. As Europe’s crisis and the U.S. debt ceiling debacle turned developed economies towards a potential recession, the Total Return Fund had too little risk off and too much risk on.”
Pimco's positions were predicated, Gross says, on internal forecasts of worldwide 2 percent real economic growth. As the world economy faltered, however, investors abandoned the emerging market bond sectors in which Gross had invested and flocked to U.S. Treasuries as a safe haven, driving up the value of Treasury holdings.
