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October 2014 - The Bill Gross Effect

News that Bill Gross – the King of Bonds – has left PIMCO to join Janus Capital Group has set in train a series of interesting way points for fixed interest investors to navigate past.

A major issue for bond traders since the Lehman crisis has been liquidity, with market makers generally much more reluctant to hold long lines of stock. This has made it much more problematical to sell holdings during times of stress. TwentyFour Asset Management has looked at the effect the PIMCO departure might have on bond markets, and its Elite rated TwentyFour Dynamic Bond fund in particular.

Here is a synopsis of their observations. To read the full article click here.

PIMCO has several funds and many segregated mandates that follow a similar, unconstrained, type of strategy. The largest of which is the $220bn PIMCO Total Return Fund. As with any change of a high profile manager, there will be investors reviewing the fund, and some are likely to decide to exit. The fact the fund has not been performing up to PIMCO’s high expectations recently has already seen it lose assets of over $70bn in the last year, so the departure of Mr Gross could be the catalyst to provide another wave of selling.

As you would expect, PIMCO is a very professional and transparent operation, and therefore full details of the portfolio holdings are available in the public domain. While it is true some of the illiquid credit based corporate bond investments are very large, more than 60% of the portfolio is in highly liquid issues in which billions can be traded every day. There would be no need to touch any of the credit holdings, with so much liquidity available in the vast holdings of liquid issues.

There will almost certainly be further redemptions from the PIMCO funds, testing the market and potentially shaking out investors. This will add to the volatility. In the meantime, TwentyFour will be watching the situation very closely to see what actually transpires. This is a very important test case for the market.

FundCalibre Opinion - TwentyFour Dynamic Bond fund**

A highly professional team running a highly focused strategic bond fund paying an attractive yield and managed with an emphasis on credit risk to ensure protection of investors’ capital and income wherever possible. This fund differs from most strategic bond funds due to a consistent weighting to asset-backed securities, an area in which they specialise.

TewntyFour Dynamic Bond I Net Acc GBP vs IA Sterling Strategic Bond TR in GB vs LIBOR GBP 3m TR in GB

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Clive Hale, Director - October 2014

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