Here’s Why Pimco Hates the Fed’s Taper

Federal Reserve

Pacific Investment Management Co. (NASDAQ:PTTRX), better known as Pimco, had a rough time of it in the wake of the Federal Reserve’s $10 billion taper of its bond-buying plan. Pimco’s money manager, Bill Gross, is to blame for the mistaken estimation of the fallout of the Fed change. Unfortunately, its funds have not been competitive in 2013 — an unusual turn of events for the usually quite successful Gross.

Two of Pimco’s eleven biggest funds did fine, but the other nine did not beat over half of their competitors in 2013. “When you take a strand, you heighten the business risk when you are wrong,” Joshua Emanuel, investor with Elements Financial Group LLC, told Bloomberg. Gross, who is now sixty-nine, became a big name as the fixed income manager for Pimco, with a net worth of $2 billion.

Sadly, this year poor bets resulted in a slight marring of his name. The Chief Operating Officer of Pimco, Douglas Hodge, told Bloomberg that the taper was a “five letter word” and that longer-dated bonds “cost us.” Gross isn’t alone in having a rough year however. According to Bloomberg, Valley Forge (NASDAQ:VAFGX), and Western Asset Management Co. (NYSE:WMC) both made big investments choices this year.

Russel Kinnel, the director of Morningstar, told Bloomberg that Pimco does things in a much bigger way than other companies. “The fact that their ideas flow through so many funds is unusual. They have to be very successful at it,” said Kinnel.

“We don’t want on portfolio manager to sell bonds to a portfolio manager on the other side of the room. It’s ineffective and produces inconsistent performance,” said Hodge to Bloomberg, explaining why Pimco is so similar across the company when it comes to its game plans and portfolios. In the past, Gross dealt well with both the financial crisis in 2008, and the housing bubble bursting — such failures as this are few and far between.