Bill Gross dubs Bonds as 'investment garbage' & stocks may follow – are you holding them?

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Bill Gross founded his investment management firm PIMCO back in 1971, which went from strength to strength. He became well known as a bond fund manager, while running the organisation’s $270billion Total Return Fund – once the world’s largest bond fund. Before his departure from PIMCO in 2014, it is asserted Mr Gross controlled more bond money than anyone in the world. He also played a key role in advising the Treasury during the 2008 financial crisis which gripped the world, focusing on subprime mortgage bonds. Bonds are usually known as fixed income or fixed interest investments. When someone invests in them, they are essentially losing their sum to the Government or a company which needs to raise money.

After investing for a set period of time, individuals can expect to receive their initial amount of money back. They are often considered less risky, and help individuals to diversify their portfolio. 

What seems to be Mr Gross’ U-Turn on the asset class, his claim to fame, has shocked some. However, he went into significant detail regarding his reasoning, writing a lengthy post on the matter on his personal website.

He wrote: “Cash has been trash for a long time, but there are now new contenders for the investment garbage can. Intermediate to long-term bond funds are in that trash receptacle for sure.”

Mr Gross has expressed his opinion on interest rates, stating that at 1.25 percent for the 10-year Treasury, they have “nowhere to go but up”. He sees 10-year Treasury yields increasing to some two percent over the next 12 months. 

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Investment: Bonds are ‘garbage’ says Bill Gross – and stocks may follow (Image: Getty)

The investment expert added: “How quickly is the real question because even if they go up by 10 basis points a year over the next decade, a bond investor could still break even with an indexed bond fund. But they’ll go up quicker than that and probably much quicker.

“I’m thinking two percent 10-year Treasuries over the next 12 months. Through the benefit of my ageing mathematical gymnastics, that equates to a four to five percent price loss and a negative total return of 2.5 to three percent.”

But that was not the end of Mr Gross’ predictions for the future of investments, and he has also expressed a great deal of scepticism for stocks, which could follow closely behind, leaving individuals with little room left to turn.

He added: “Earnings growth had better be double-digit plus or else they could also join the garbage truck.”

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Mr Gross also made reference to the currently unfolding crisis in Afghanistan, which has seen US and UK troops pull out of the region following 20-years of military presence. The fallout, he said, could impact investors.

Another problem he cited was the issue and “incessant push” of global warming, but he explained “few investors seem to care about it unless there’s a new solar IPO to run up on the first day”. 

For those who are dismayed by the  negative picture Mr Gross has potentially painted of the future, what steps should be taken next? Mr Gross did point towards what he believes could work best next, joking that he had “expressed another opinion”.

He, seemingly tongue-in-cheek, referenced two recent occurrences which piqued the interest of many people right across the globe, hitting headlines for staggering sums of money.

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Investments: Bonds are usually considered a ‘safe’ choice (Image: Getty)

First was “Salvatore Garau’s NFT”, where an artist reportedly sold an “invisible sculpture” for a $18,000. The Italian artist’s work, entitled ‘Io Sono’ or ‘I Am’ does not exist, rather is a space “full of energy”. 

Mr Gross also spoke of the “Honus Wagner baseball card”, a sports card which depicts the famous American baseball shortstop who played from 1897 to 1917, mostly for the Pittsburgh Pirates. 

One recently sold for $6.606million, breaking the record for the most expensive sports card ever. ESPN estimates there are approximately 60 of these cards left in existence. 

Mr Gross latest note is not the first instance where he has commented on the long-standing bull market in bonds. In fact, individuals only have to look back to March where the expert said he expected yields to climb to three percent. 

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Indeed, back in 2018, he also discussed the idea of Government bonds, calling them a “bear market” after the Treasury yield surged. 

Many have looked to Mr Gross for guidance over the years, as he cemented his place as a pioneer in fixed income investing. Throughout his career, he has been the recipient of numerous awards for fixed income management. 

Mr Gross announced his retirement from Janus Henderson Investors and from active fund management back in February 2019. He intended to spend more time on managing his personal assets, alongside his sizeable private charitable foundation. 

The William, Jeff and Jennifer Gross Family Foundation is worth $390 million in assets, and annually donates more than ¢21million to non-profits involved in humanitarian causes, health care and education. 

Harry Byrne

Harry Byrne

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