The PIMCO Dilemma

In early February a high level departure of the CEO of PIMCO Investment Management, Mohamed El-Erian, was announced. As some may know, PIMCO is one of the largest managers of fixed income mutual funds in the world, with $2 trillion under advisement. The story of El-Erian’s departure revealed a very peculiar – maybe more aptly described as hostile – work environment at the firm, promulgated by the company founder and Co-Chief, Bill Gross. In interviews, Gross did not deny his work habits and behaviors.

Some clients may recall that Sigma had used one of the PIMCO funds in portfolios. Most of those positions were eliminated a couple years ago based upon our own concerns about Gross’ increasingly erratic investing style. He began to take extreme positions – selling out of all US Treasury securities in March of 2011, for example – suggesting that his knowledge was impenetrable. This move subsequently proved faulty.

At Sigma, we feel conviction is a necessary ingredient for success, but so too is humility. Yes, these are typically mutually exclusive behavioral attributes. But, this is where art enters and a professional has to be able to discern which should hold sway. An untimely lack of humility often leads to pride and stubbornness, and these two can result in potentially fatal investment results.

The published story seems to vindicate our decision to eliminate the PIMCO fund. We mention this only to highlight the disparate and varying forces at play, with regularity, that influence our investment decision making on a day to day basis.

All questions and comments are welcomed.

Bob Bilkie, CFA