MutualFundWire.com: Will Pimco Diversify, Or Is The Ship Sinking?

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Wednesday, July 3, 2013

Will Pimco Diversify, Or Is The Ship Sinking?

The New York Times' Dealbook finally covered Bill Gross' assurance to investors that everything would be just fine, as Bloomberg and the WSJ did the week before.

But Dealbook's Nathaniel Popper analyzed a new problem for the Pimco[profile]: How will its concentration in bond-focused funds affect its long term performance? Nearly 90 percent of its assets are in bond-focused funds and 5 percent are in commodity funds. BlackRock [profile] has a quarter of its assets in bond funds.

Even if the volatility fades, Popper writes, that concentration could prove problematic for Pimco, because the hay day of falling interest rates is over, according to some economists. Though investors can continue to see healthy returns as rates get higher, Pimco underestimated the importance of diversification.

Though Gross and other fund managers have tried to get out in front of the problem by speaking to every financial newspaper in the country, but industry experts wonder if they have a plan to confront the problem.: “They focused on their strengths, but now we have to ask, ‘If we’re going to be in an essentially flat or bear market for bonds, what comes next?’ ” said Kurt Brouwer, chairman of the financial advisory firm Brouwer & Janachowski. “I don’t think they have an answer to that.”

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