Market Swoon Slams Bill Gross's Unconstrained Bond Fund

Aug 26 2015 | 1:16pm ET

By Jennifer Ablan (Reuters) - Bill Gross's Janus Global Unconstrained Bond Fund suffered its second day of declines in its net asset value on Tuesday, wiping out gains for the year, according to Morningstar on Wednesday.

The $1.5 billion Janus fund's returns stood at negative 2.63 percent year-to-date as of Aug. 25, which places Gross's portfolio behind 92 percent of its peers category, Morningstar said. The Janus Global Unconstrained Bond Fund was down 0.42 percent on Tuesday after a 2.86 percent decline on Monday.

"Looking to their asset allocation as of July 31, the fund has 6 percent or so exposure to equity-related securities and has 20 percent in high-yield bonds while another 14 percent in non-rated bonds," said Todd Rosenbluth, director of ETF & Mutual Fund Research at S&P Capital IQ Global Markets Intelligence. "This is an approach that will benefit from a flight to quality of investment-grade corporates and Treasuries."

Unconstrained bond funds had become some of the most popular investment vehicles over the last year because they have the flexibility to invest in all types of bond securities globally and often choose credit rather than interest-rate sensitive assets.

Rosenbluth said, "Investors would have been better in a traditional bond fund."

A Janus spokeswoman did not respond to requests for comment.

Last month, Janus Capital Group announced Gross would be getting help running his mutual fund from Kapstream Capital Kumar Palghat after the Denver-based Janus acquired a majority stake in Kapstream.

Gross, who began managing the Janus Global Unconstrained Bond Fund in October, continues to be primary portfolio manager. Palghat will be co-portfolio manager.

Kapstream is a pioneer in managing global unconstrained fixed income, Janus said.

Gross, known as the "bond king" for his decades-long run of successful returns, shocked fixed-income markets last September when he quit PIMCO, the firm he co-founded and had built into a $2 trillion powerhouse, for Janus.

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