Investors who followed the famed bond investor Bill Gross and put money into his new mutual fund at Janus Capital are sitting on a 2.5 per cent loss at the first anniversary of his dramatic career move. Investors who stayed put in the Pimco Total Return fund that Mr Gross had managed to great acclaim for decades are up 1.7 per cent.
These contrasting figures shame many of the easy assumptions that were made in the days that followed Mr Gross's resignation from Pimco in September last year, when regulators feared massive outflows would destabilise the Pimco fund and Mr Gross said he expected to be able to do much better running a smaller, nimbler portfolio.
The diverging performances also help explain another surprise: while the outflows from the Pimco Total Return fund were indeed huge — $120 billion and counting — barely $1 billion flowed to Mr Gross's new Janus Global Unconstrained Bond Fund.
By underperforming, Mr Gross may be inadvertently helping Pimco make its own case: that the investment process, trading infrastructure and intellectual firepower across the asset management group count for as much, if not more, than any one individual's investing talent.
That is the argument Pimco has made repeatedly since Mr Gross walked out to join Janus, without even informing colleagues. His departure from the company he co-founded 43 years earlier was an earthquake in fixed income asset management, the denouement to months of management turmoil at Pimco, concern about Mr Gross's erratic behaviour and a move by other executives to oust him.
While analysts say outflows from the core bond portfolios Mr Gross used to manage are likely to continue, Pimco and its parent company Allianz are focusing on alternative products where they continue to attract investors and which they say represent the future of the business.
"What is very good, and what I look at, at the moment, is the net inflows that we have in what we call the future platforms," says Oliver Bäte, chief executive of Allianz. "We are shifting from institutional, more into retail; from traditional traded fixed income to credit and to alternatives; from a US focus, a lot more to Europe and Asia."
Pimco put the Total Return fund under new, collegiate management last September, under Scott Mather, Mark Kiesel and Mihir Worah, and the trio have emphasised continuity.
While Mr Gross was most famous for big calls on the direction of interest rates, a good part of the fund's market-beating returns came from trading strategies such as selling insurance against market volatility.
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Meanwhile, the trio also bet on a rising dollar, which propelled the fund back near to the top ranking in its category, at least until the date of the first US interest rate rise was pushed out.
According to research firm Morningstar, the fund's returns have beaten the average core bond fund by 62 basis points over the year.
Customer outflows have more than halved the size of the fund to $98 billion, and related funds and accounts managed by Mr Gross have borne the brunt of the rest of the redemptions, too.
Pimco's group-wide assets under management have dropped by one-fifth since September last year, to a little more than $1.1 trillion at the most recent update at the end of June, excluding those funds managed for Allianz.
The latest quarter will also be negative, analysts suspect.
"Pension fund consultants, advisers and boards all make decisions on a lagged behind basis," says Dan Fannon, asset management industry analyst at Jefferies. "It is a slow process, and while the outflows have subsided somewhat, they are ongoing."
Mr Bäte says the core bond portfolios are suffering for reasons that go beyond Mr Gross's departure, and that these broad, conservative fixed income funds have fallen out of favour with investors who fear they will be hurt by rising interest rates.
"We are at the end of a 30-year bull market where Pimco benefited the most because they had the largest fund with the highest efficiency in the most exposed product to the interest rate cycle," he says.
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"If you want to get the double whammy on the way up, you're also going to get the double whammy on the way down."
Understanding that market shift, Mr Gross decided at Janus to launch not a core bond fund but a new "unconstrained" fund that could make both positive and negative bets on fixed income, make widespread use of derivatives and invest in riskier bonds than he could at Pimco.
The result has been a higher-risk portfolio that slumped during the turmoil of August and has returned 500 basis points less than the bond market as a whole over the past year.
The shift in strategy meant that institutional investors were less likely to give him credit for his long record in core bonds, and even retail investors have been put off by the weak start. His fund has grown to only $1.4 billion, and about half of that is Mr Gross's own money.
"It is a numbers game from now," says Mr Fannon. "The initial hype has subsided. The only way flows will improve is if his performance numbers improve."