Objective research to aid investing decisions
Menu
Value Allocations for May 2019 (Final)
Cash TLT LQD SPY
Momentum Allocations for May 2019 (Final)
1st ETF 2nd ETF 3rd ETF

The Bond King’s Alpha

Posted in Bonds, Investing Expertise

Did Bill Gross, the Bond King, generate significantly positive alpha during his May 1987 through September 2014 tenure as manager of PIMCO Total Return Fund (Fund)? In their March 2019 paper entitled "Bill Gross' Alpha: The King Versus the Oracle", Richard Dewey and Aaron Brown investigate whether Bill Gross generates excess average return after adjusting for market exposures over this tenure. They further compare evaluation of bond market alpha for Bill Gross to evaluation of equity market alpha for Warren Buffett. Following the explanation given by Bill Gross for his outperformance, their factor model of Fund returns includes three long-only market factors: interest rate (Merrill Lynch 10-year Treasury Index), credit (Barclays U.S. Credit Index) and mortgage (Barclays U.S. MBS Index). It also includes a fourth factor that is long U.S. Treasury 5-year notes and short U.S. Treasury 30-year bonds, with weights set to eliminate coupon and roll-down effects of their different durations. Using monthly returns for the Fund and the four model factors, and monthly 1-month U.S. Treasury bill yield as the risk-free rate during June 1987 (first full month of the Fund) through September 2014 (when Gross left the Fund), they find that:

Please or subscribe to continue reading...
Gain access to hundreds of premium articles, our momentum strategy, full RSS feeds, and more!  Learn more

Daily Email Updates
Login
Research Categories
Recent Research
Popular Posts