On Aug. 18,
In the readjustment process, debts take a haircut via corporate defaults and home foreclosures, and equity P/Es are cut based upon increased risk and substantially lower growth expectations. A virtuous circle of expansion turns into a vicious cycle of
Anyone following Gross' line of thinking knows what this means: Protect your capital and accept lower rates of return if it means reducing losses on assets. High-risk funds often carry high fees, but if Gross is correct, those funds will be unable to deliver high returns. In a lower return world, volatility will likely be lower as well, and high fees will chew up a greater percentage of investors' assets.
In Gross' August outlook, he says of mutual fund expenses, common sense would dictate that the industry as a whole cannot outperform the market because they are the market, and long-term statistics revealing negative alpha for the class of active managers confirms it. Yet, what a price investors are willing to pay!
Many of Pimco's own funds charge fees in the neighborhood of 1%, with Pimco Total Return charging 0.75% and the A class (PTTAX) charging 0.90%. The R class (PTTRX) charges 0.45%, which is nice if you can get it in your retirement account. Another option is Harbor Bond(HABDX Quote), which is advised by Gross but has only a 0.55% fee.
A yield of more than 5% makes the fund an attractive income source in a world of low yields, but it also delivers capital gains. PTTDX (returns will be slightly higher for PTTRX due to lower fees) gained 4.5% last year, when many bond
High yields are out there, but the risks of default are high. Index