Bill Gross & The Janus Problem

It’s great Bill Gross is looking forward to his second life. But there’s a problem: transparency.

Bill Gross did his first town hall meeting last Thursday, and by all accounts he’s settling into his new job doing exactly what he’s always done very nicely. Hey, that’s awesome. I’m glad Bill’s happy. I generally think people should do what they love and be happy and all that.

But as an investor, the move to Janus is a step backward.

Look, I’m on the record in a hundred places saying I’m not a big believer in active management. It’s not that I don’t think people beat the market—they do all the time. I just don’t believe I personally can pick the year the active manager is going to outperform, and thus, on average, me picking active managers is a guaranteed way to underperform.

But I get that some folks are true believers, or maybe are just smarter at getting in and out of the active managers at the right times. Diversity is awesome. So let’s take a quick look at the top of the food chain in bonds right now.

First, there’s PIMCO, which, despite Bill Gross’ departure, is the undisputed bond king as a firm.

Its current (somewhat unrelenting) ad campaign, which is a pop-over on its own site right now, highlights its team. It’s smart public relations: Replace the reliance on one star manager by showing your team’s depth. And hey, I’m sure those are some smart men and women in the picture. Heck, we’ve got Scott Mather coming to our Inside Fixed Income conference this month. We know they’re smart.

And here’s the thing—I don’t have to just read their bios, dig up some track records and roll the dice.

Active, But Transparent

Because these folks are running the PIMCO Total Return ETF (BOND | B), I can actually just see what’s going on. So for instance, I can tell you that the fund has gone from holding no position in Mexico just a few months ago to a hefty 5 percent.

I can tell you that BOND has been slowly pushing out duration toward five years as dovish policies seem to be the order of the day. I can tell you they’re making a big bet in the Sallie Mae Student Loan Trust.

That’s all as of this morning.

Bill’s New Gig

Now, Bill’s gone off to Janus to shake things up.

It would be extremely useful, as an investor trying to make a real decision in possibly the most misunderstood asset class in investing, to know just what he’s doing.

Here’s what I can tell you about his fund at Janus, the Janus Global Unconstrained Bond fund.

I can tell you that in August it was 70 percent in Treasurys and 20 percent in high yield. I can tell you that, in August, it had duration of about 3.3. As far as actual holdings, well, last time Janus deigned to post them was in June, and the fund was 60 percent cash.

So somewhere between June and August, the fund has made some enormous repositioning, and I have no idea into what, except, I guess, high yield and Treasurys.

As for what’s happened in the past six weeks, including the new tenure of Bill Gross? No clue. For all I know, the find is now 50 percent in Mexico. For all I know, Bill Gross is betting hard on the ruble.

And that’s the problem.

Beyond Active

While active equity managers appear to be mostly waiting on the sidelines for nontransparent active ETF structures to be approved, the writing is clearly on the wall that, in fixed income, that it just doesn’t really matter.

That’s why Fidelity seemed to have no qualms about launching a copycat version of its $16 billion total bond fund in ETF form, the Fidelity Total Bond ETF (FBND). The ETF has the same managers, the same mandate and, we assume, the same holdings.

But the big difference is you can see under the hood, each and every day. I know exactly how much Mexico, or Walmart or student loan trust is in FBND on any given morning.

Bonds may seem like a sleepy asset class, but the last few weeks have shown them to be anything but.

Me? I want to know whether or not my bond portfolio is south of the border or in student loans. And not just last June. I wish Bill nothing but the best of luck, but boy, I hope they start telling folks what he’s investing in. Maybe even in an ETF wrapper.

Note: You can hear what’s really going on at PIMCO at our Inside Fixed Income conference on Oct. 22 in Newport Beach, California. Scott Mather, CIO U.S. Core Strategies at PIMCO, will be closing the conference.

At the time this article was written, the author held no positions in the securities mentioned. You can reach Dave Nadig at [email protected], or on Twitter @DaveNadig.