Recent news of the US government's takeover of Freddie Mac and Fannie May catapulted the Pimco fund to a $1.7 billion gain on Monday. This is the highest one-day gain against its benchmark index. This is in sharp contrast with the investors of Fannie May and Freddie Mac, who suffered massive losses as a result of the news.
Fund manager Bill Gross' shift to agency bonds over the last year is largely responsible for the gain, dumping US T-bills and corporate bonds in order to compensate for his predicted US takeover of the two organizations. Pimco's took a huge calculated risk in this move, but had they not taken these steps, Pimco would be in a similar predicament that Freddie and Fannie investors faced on Monday. Morningstar reported that for the 12 months before August 1, Pimco had beaten all of its peers, gaining 9.2 percent.
Right now, Gross and other investors on the Pimco team must be thinking of what they're going to turn their newly minted $1.7 billion into. Judging by Gross' history, he seems to favor short term investments. Look for changes in the near future.
Brewster, Deborah. "Bail-out wins Pimco $1.7bn." Financial Times.
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2 comments:
do you attribute Pimco's gain to anything other than the effects of the information age? I would be curious to see if there are any similar reported gains involving stock transactions just prior to market-changing news like the Fannie and Freddie takeovers prior to the information age...
This comment addresses Alex's comment as well as the post itself. To me it does not seem that Pimco's gain is primarily due to information availability (although it was much aided by it), but to sound financial planning and taking a huge risk. What is interesting to me in this case is how the Pimco fund manager, Bill Gross, was so thouroughly convinced in the takeover that he managed to use it as justification of the risk. It is highly improbable that no one else benefited from the takeover, albeit not on such a scale. So my two cents about this article is that information technology and information availability are like keys on a huge key-chain - it takes a savvy person to find the right key and unlock the treasure chest before someone else does.
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