We have discussed ad-nausea the challenges of investment professionals adding value consistently over time via prediction (see here). This post highlights another example of the fallacy of experts.
Pimco boasts $1.357 Trillion in assets under administration and over 2000 employees in 11 countries. Bill Gross, lead manager of Pimco's Total Return Fund behemoth, is constantly featured in the media, and the PIMCO team is without a doubt the global leader in bond investing.
Yet the PIMCO Total Return Fund dramatically under preformed a myriad of low cost passive bond ETFs in 2011.
In mid-2011 Bill Gross made a bold call; he asserted that Treasury prices had peaked, and sold off the majority of his Treasury holdings, only to see Treasuries have one of their best years ever.
If anyone was going to "see" the massive rally in U.S. Treasury bonds and position themselves for it, wouldn't it have been them? Yet their prognostications of a year ago were of the exact opposite direction.
This reminds us of Danish physicist Neils Bohr famous quote: "Prediction is very difficult, especially about the future."