Income Opportunities in 2011: Updating Bill Gross's Long-Term Performance

In response to my previous article “Bill Gross’s Significant Income Opportunities in 2011”, one reader suggested that I take a look at Gross’s 2007 and 2008 picks since he felt like they performed poorly. I had gone back to 2009 and 2010 in an effort to give readers a sense of Gross’s track record, which has been impressive.

The reader was correct – 2007 and 2008 were not stellar – but Gross’s picks actually did beat the appropriate LikeAssets benchmarks and the S&P500. The hard part was the wild ride an investor experienced along the way. First a brief update on the performance of the 2011 picks PTY and NLY.

Bill Gross 2011 Picks Update

The performance of PTY and NLY since the 1/24/2011 recommendation date are detailed below.

As expected PTY reacted to the recommendation by widening the premium of Price to NAV by a substantial amount, approximately 10% from 8 to 18%. Even though the 3 year chart below of the premium/nav shows a peak premium of over 30%, the current premium of 18% seems to be the peak premium for PTY with that one exception. As I mentioned in the follow up article, it might be good to explore alternatives until the premium cools down.

PTY Premium Expansion Since 1/1/2011

PTY 3 Year Premium/NAV

Bill Gross Picks – Expanding the Historical Analysis to Include 2007-08

Gross’s 2007 Picks’ Performance

In January 2007 Gross advised investors to buy the iShares MSCI EFA index ETF (EFA), and two closed end funds, Pimco Strategic Global Government (RCS), and Black Rock Floating Rate Income (FRA). Holding EFA, RCS, and FRA until January 2008 when Gross offered his 2008 picks returned 1.1%, -1.0% below the LikeAssets benchmark. During the same period the S&P500 provided a -0.5% return. EFA was the best pick with a 4.7% return.

Gross’s 2008 Picks’ Performance

In January 2008 Gross picked Pimco Corporate Opportunity Fund (PTY), Pimco Corporate Income Fund (PCN), and Invesco Van Kampen Municipal Trust (VKL). Holding PTY, PCN, and VKL until January 2009 when Gross offered his 2009 picks returned -13.7%, +5.2%% above the LikeAssets benchmark. During the same period the S&P500 provided a -37.8% return. PCN did the best by losing only 8%. The end result wasn’t actually that bad considering 2008 was a wasteland for most investments. The issue was the ride along the way when the loss actually ran down below -40% at one point.

Gross’s Track Record 2007 – 2011 Picks’ Performance

LikeAssets will continue to follow Gross’s picks for 2011 and also is keeping a running total in a portfolio that follows his picks since 2007. The portfolio and chart below have been updated from the last article to reflect the 2007 and 2008 picks as well.

The analysis below assumes that an investor bought Gross’s picks in January 2007 on the first trading day after the magazine came out. In January 2008 the new picks were purchased and the 2007 picks were sold. This process was repeated for 2009, 2010 and now reflects January 2011 picks.

You can view this portfolio in more detail here.

Investors interested in understanding their portfolio’s returns and alpha should try the LikeAssets application now available at the Seeking Alpha app store.