In an open letter to investors released today, Gross is candid about the misjudgments that produced an anemic 1.09% total return for the fund so far this year, compared with a 5.56% gain for the iShares U.S. Aggregate Bond Fund (AGG), a comparable (but cheaper) index-tracking ETF.
In an industry that reports performance almost in real-time, you can’t hide from the numbers, and the fund’s dismal record this year was no secret. Still, writing an apologetic letter takes guts, and Gross demonstrates two important principles of good communication: first, to “own” the news, good and bad, and second, to make it genuine. The tone of the letter is vintage Bill Gross – casual but clear, and peppered with baseball analogies:
“The simple fact is that the portfolio at midyear was positioned for what we call a “New Normal” developed world economy – 2% real growth and 2% inflation. When growth estimates quickly changed it was obvious that I had misjudged the fly ball: E-CF or for nonbaseball aficionados – error centerfield.”
The letter does a good job of describing what went awry, in plan language, and it shows Gross re-committing himself and his team to recapture the ground they’ve lost. It’s a standard for other high-profile fund managers when they hit a slump (sorry, more baseball).
And one shouldn’t lose sight of the fund’s long-term track record, which is impressive. Over the past five years, the Total Return Fund has returned 7.79%, compared to 6.27% for AGG.