‘Time for risk taking has passed’: Bill Gross
Janus Capital fund manager Bill Gross has warned investors they should be “content” with low returns from bonds this year.
The manager, who shocked the industry last year when he quit Pimco - the group he co-founded - to join rival group Janus said investors were not fully aware of the impact monetary policy is having on potential future returns.
He claimed investors “have continued to assume that monetary (and at times fiscal) policy could contain the long-term business cycle and produce continuing prosperity for investors in a multitude of asset classes both domestically and externally in emerging markets”.
“There comes a time, however, when zero-based, and in some cases negative yields, fail to generate sufficient economic growth,” he said.
“While such yields almost automatically result in higher bond prices and escalating price-to-earnings ratios, their effect on real growth diminishes or in some cases, reverses.”
Mr Gross said both the real economy and that of the financial world become “threatened” with zero-based, “nearly free money available for the taking” meaning returns in many sectors “may turn negative”.
The manager said in such a situation, investors would flock to safe havens, such as “high-quality assets with stable cash flows”.
“Those would include Treasury and high-quality corporate bonds, as well as equities of lightly levered corporations with attractive dividends and diversified revenues both operationally and geographically,” he said.
“With moments of liquidity having already been experienced in recent months, 2015 may see a continuing round of musical chairs as riskier asset categories become less and less desirable.
“Debt supercycles in the process of reversal are not favorable events for future investment returns.”
He added: “Be cautious and content with low positive returns in 2015. The time for risk taking has passed.”
