NEW YORK (Reuters) - Bill Gross, the closely watched bond investor, on Wednesday said the portfolios he manages at Janus Capital Group Inc closely resemble the investment strategies of Bridgewater Associates, the world’s largest hedge fund firm.
Gross, who runs the Janus Global Unconstrained Bond Fund, said in his latest Investment Outlook report: “Unconstrained portfolios at Janus mimic most closely the strategic philosophy at Bridgewater.”
Unconstrained bond funds have become some of the most popular investment vehicles over the last year because they have the flexibility to invest in all types of bond securities globally and often invest in credit rather than interest-rate sensitive assets.
Bridgewater, with assets under management of about $169 billion and run by Ray Dalio, has used leverage to try to magnify returns on stocks, bonds and commodities.
“Cheap leverage is an alpha generating strategy as long as short rates stay low,” Gross said. “Of course if an investor borrows short term to invest longer and riskier, the potential alpha necessarily demands choosing the correct assets to lever. The challenge is to purchase the ones that might remain artificially priced over one’s investment horizon.”
Gross said corporate credit spreads are too tight and therefore expensive. “Duration is more neutral but there is little to be gained from it in the U.S., Euroland, and the U.K. unless the global economy inches toward recession.”
All told, Gross said the most attractive opportunity rests with the notion that Mario Draghi’s 18-month Quantitative Easing program, which roughly purchases 200 percent of sovereign net new issuance during that time, will keep yields low in Germany and therefore anchor U.S. Treasuries and U.K. Gilts in the process.
“I would not buy these clearly overvalued assets but sell ‘volatility’ around them, such that much higher returns can be captured if say the German 10-year Bund at 20 basis points doesn’t move to –.05 percent or up to .50 percent over three months’ time.”
Reporting By Jennifer Ablan; Editing by Bernard Orr