William H. Gross on Thursday said investors need to say “bye-bye” to the days of historically high returns, and target returns of as much as 9% for pension funds are “going to be difficult to achieve, especially with rates where they are now.”
In a webcast in which he was interviewed by Janus Capital Group CEO Richard M. Weil, Mr. Gross said: “Times have changed. This second financial era may be alive and well, but it's not going to be the same as it was in the past.”
Mr. Gross used the webcast to discuss his first investment outlook published since joining Janus Capital on Sept. 29.
He cited a number of structural issues hindering the global economy: lack of aggregate demand; global debt levels; demographic challenges in developed nations; what he called “the race against the machine,” how technology is affecting job creation; and globalization — jobs migrating to cheaper labor markets.
In his “You Only Dance Twice” outlook, Mr. Gross said investors should lower expectations for stocks to 5% and 6% and for bonds, to 3% to 4%. Despite that subdued outlook, Mr. Gross also said he doesn't foresee any significant bear markets in the near term.
Against this backdrop he made the case for the unconstrained fund he will manage at Janus, which will have a shorter duration/maturity of one- to two-years.
In the introduction to his outlook Mr. Gross addressed why he left Pacific Investment Management Co., writing: “Had there been a reasonable way to continue there, I would have stayed to my last breath.” But “slowly and with great hesitation, I came to understand that it was time for me to leave.”
In the interview, he expressed empathy for those who have suffered disruptions in their portfolios since his departure from PIMCO, but said there will be better times ahead. He referenced his time in the Navy with the phrase “a red sky at night is a sailor's delight,” saying he saw the same red sky with his departure from PIMCO, and that he is “very comfortable with Janus as my home port.”