Bruising Quarter for Bond Fund Managers; Large Funds Posted Losses in Quarter
A sudden surge in U.S. interest rates has dimmed the luster of some of the bond world's brightest stars.</br></br>Bill Gross, Dan Fuss, Jeffrey Gundlach and Michael Hasenstab were among portfolio managers whose funds posted losses during the second quarter.</br></br>The tumble in Treasury prices led to the biggest-ever quarterly loss for Mr. Gross's $268 billion Pimco Total Return fund. Investors in the fund at Pacific Investment Management Co., a unit of Allianz SE of Germany, have lost more money than holders of the average bond fund this year, a rare setback for a manager who has consistently beaten the market over more than two decades. Of the four large bond funds, Pimco Total Return was the only one to trail its benchmark in the second quarter and full year.</br></br>The culprit: a rapid rise in Treasury yields that started in May amid fears the Federal Reserve would pull back its stimulus. The yield on the 10-year Treasury note has risen about a percentage point since early May. On Thursday, the yield fell to 2.576%. Bond yields move inversely to prices.</br></br>The reversal was particularly brutal for holders of emerging-market bonds and Treasury inflation-protected securities, or TIPS, which compensate investors for rising inflation. Neither bet panned out as funds rushed out of poorer-country markets and U.S. inflation softened. Mr. Gross allocated 18% in the two asset classes in the bond fund at the end of May, according to Pimco.