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Former bond king Gross says chances of beating the market are 'much less' now

Key Points
  • Bill Gross says in a Bloomberg interview that beating the market is getting harder to do.
  • Alpha generation is constrained by low volatility and has "much less" of a probability now, the Pimco co-founder says.
Bill Gross' Janus Henderson Global Unconstrained Bond Fund suffered more than $200 million in redemptions last month, lowering assets to $1.25 billion from over $2.24 billion in February.
Lucy Nicholson | Reuters

Former bond king Bill Gross thinks he might be one of the last of his kind as it gets increasingly tougher to beat the market.

A month after announcing his retirement, Gross looked back on his career and took a peek forward at a market that he said is stacked against managers trying to generate alpha.

"I think there are things to look at that still exist in the market that can generate alpha," the Pimco co-founder and former Janus Henderson fund manager told Bloomberg. "The probabilities of generating historical alpha in the same way are much less than they were."

Easy central bank monetary policy that is tamping down market volatility makes it difficult for active management. The Federal Reserve and its global counterparts responded to the financial crisis with massive runs of asset purchases while keeping interest rates anchored near zero.

The result has been years of underperformance by stock pickers as well as fixed income fund managers like Gross.

"The opportunities are diminished," he told Bloomberg.

However, as central banks have begun to normalize policy active managers have fared a little better. In 2018, about 43 percent beat their benchmarks, according to Bank of America Merrill Lynch.

Gross, though, saw his unconstrained fund lag behind its competitors since he joined Janus Henderson following a 40-year run at Pimco. The fund has since been renamed the Janus Henderson Absolute Return Income Opportunities Fund and has seen its assets slump to $914.5 million.

One of the problems with finding alpha is the lack of new products, Gross said. He also cited high-speed trading and its use of algorithms. He figures the market probably has gone as far as it can in finding innovative new investment vehicles.

"Markets have gone about as far as they're going to go from the standpoint of technological promise or new products, which is always dangerous," he said. "One of the reasons Pimco did so well wasn't necessarily from the genius of Bill Gross or the investment committee" but was "from our recognition of new products and our willingness to jump on board the train when we had the confidence new products were creditworthy."

Read the full Bloomberg report here.