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COMMENTARY - 4TH QUARTER 2009“PIMCO to Branch into Actively-Managed Stock Funds” Why has PIMCO, the world’s largest bond management firm, decided to enter the equity management business following the worst decade in history for stocks? We know why: Bill Gross of PIMCO has a problem on his hands. His firm, founded in 1971, has benefited immensely from the extraordinary bull market in bonds that has occurred over the past 30+ years, as interest rates have gradually declined from the double-digit levels of the late 1970’s and early 1980’s to today’s near-zero percent interest rates. The problem is that, after hitting rock bottom, interest rates have only one direction they can go, and that’s not welcome news if you’re a bond manager presiding over almost $1 trillion in securities that will decline in value as interest rates rise.
This type of investor behavior reminds us of the spring of 2000, when investors poured money into stock mutual funds searching for the quick buck right at the peak of the stock market bubble. Just as those investors who chased their Internet fortunes in 2000 were burned, so too will people who are overly invested in bonds today. Best regards, The Golub Group |
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