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'King of bonds' is having a bad year

William Gross' Janus Henderson Global Unconstrained Bond Fund drops 3% in a day, and is down 6% for the year

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"My whole evening is dependent on whether I beat them (rival fund at Pimco). You see, I have to prove it all over again. Every day." William Gross

WILLIAM Gross, one of the world's best-known investors, is having a very bad year. There was an acrimonious divorce. And now he is getting pummelled in the markets.

On Tuesday, the mutual fund that he runs at Janus dropped 3 per cent - an extraordinary one-day decline for a bond fund. Mr Gross had been betting that interest rates on German and US government bonds would rise, but fears that Italy could leave the eurozone have prompted investors to seek safety in those bonds, increasing their prices and pushing down their yields.

That left his fund, the Janus Henderson Global Unconstrained Bond Fund, down 6 per cent for the year. It now ranks at the bottom of its category of similar funds for this year as compiled by the investment research firm Morningstar.

Bond funds like Mr Gross' are not supposed to lose 3 per cent in a day or 6 per cent in half a year. Compared with their counterparts that invest in the stock market, bond funds are generally considered safer and more stable places for investors to park their money.

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Years after the eurozone debt crisis, Mr Gross apparently did not anticipate the return of political and financial turmoil. But the possibility that a populist government in Italy could try to pull out of the common currency raised questions about the safety of the country's government bonds and sent global bond markets on a roller coaster.

But it is not just the European uncertainty that is ravaging his fund, which invests in derivatives and other complex financial instruments as well as traditional corporate and government bonds. He has long been known for his bets that markets would remain mostly calm, and his portfolio has also taken a hit from recent volatility, which was ignited in February by the expectation that the US Federal Reserve might raise interest rates faster and further than anticipated.

It has been a steep fall for Mr Gross, who was once the undisputed king of bonds. He popularised the concept of bond funds for the everyday investor, a shift from the days when retail investors dabbled only in stocks. He helped found Pacific Investment Management Co, or Pimco, and his main fund, Pimco Total Return, managed US$292 billion. It was the largest fund of its kind in the world.

In 2014, though, he was forced to leave Pimco amid allegations that he was an abusive boss and was mismanaging the huge business. That led to a years-long legal brawl. The two sides settled in 2017. The terms were not disclosed, although both sides said that any proceeds would be donated to charity.

Approaching his 70s and with a net worth of more than US$2 billion, Mr Gross might well have opted for retirement then. Instead he chose revenge. He set up shop at Janus, a competing fund company, in an office with a full view of his former employer's building in Newport Beach, California.

His new fund was a fraction of the size, with US$2 billion in assets. And a substantial portion of that was his personal money. But it was enough for him to do daily battle with a rival fund at Pimco.

"My whole evening is dependent on whether I beat them," he said in an interview with The New York Times in April 2016. "You see, I have to prove it all over again. Every day."

At the time, his returns were superior - by quite a margin. But not anymore. Over the past three years, a similar Pimco fund is up 10 per cent. Mr Gross' offering is up just one per cent, according to YCharts, a data provider.

All of this is happening as Mr Gross' personal life has been unravelling because of a contentious divorce with his ex-wife, Sue. For years, Mr Gross would cite the 31-year marriage in his quirky investment letters, a down-home touch that endeared him to his loyal following of investors.

In the 2016 interview with The Times, he talked of kissing his wife each day upon his return from work. Just a few months later, Mrs Gross moved out of the mansion that they shared on top of a bluff in Laguna Beach. She cited her husband's "irrational and frightening behaviour", according to court papers.

In November 2016, she filed for divorce. The split was finalised last October. During that personal turbulence, Mr Gross sought refuge in trying to divine the ups and downs of the bond market.

Even so, court documents from the divorce proceedings, filed in California Superior Court in Los Angeles, suggest that his legal fights have taken their toll. He complained of being on edge, short on sleep and rattled. "My peace of mind has been severely disturbed," he said.

But there was no sign that the man who brought bond investing to the masses, now 74, would call it quits. "Although I am 73," he said in a filing last year, "I still work full time." NYTIMES

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