PIMCO and Market Timing

We noted in today's Wall Street that PIMCO's flagship bond fund is up 1.55% this year, better than 74% of all comparable bond funds. But here is our Dynamic Bond Strategy - up 10.21% for the year through August 22 (AGG is the Lehman Aggregate Bond Index ETF).

In Bill Gross' defense, he has recommended doing what we've done: buying closed-end bond funds. It's just that with his fund at $94 Billion in assets he doesn't have much flexibility to do the things that a smaller, more nimble competitor can do. He would drive up the discounts on closed-end bond funds without even being able to spend 1/2 of 1% of his fund's assets. As the article says, he is mostly relegated to being a market timer by making large interest rate bets on liquid securities (US Treasuries). There are those who do this well but it is more difficult to be consistently right than with a "value" approach to investing.

Strategy update: though we've had a great run on bonds with the 40-basis point drop in rates on 10-year treasuries since the end of June we think there is more to come. The rate decline appears to coincide with the acceleration in the nation's housing slump. Discounts to NAV on closed-end bond funds have narrowed some but are not yet at levels that would concern us. We continue to be long maturity on all our fixed income portfolios.