Bill Gross, Morningstar's Fixed-Income Manager of the Decade, works 3,000 miles from Wall Street. Perhaps it was that distance that helped him and his Pacific Investment Management Co. colleagues anticipate the housing crisis.

Pimco's flagship Total Return Fund had a 10-year annualized total return of 7.7% for the decade, according to Morningstar, with similar performances for its three- and five-year funds.

The performance of the Total Return Fund is all the more impressive considering its size. By the end of 2009, it had reached just short of $202 billion, making it not only the world's largest bond fund but also the largest mutual fund. American Funds' Growth Fund of America, which has $156 billion of assets, is a distant second.

Karen Dolan, director of mutual fund analysis at Morningstar, said Gross' success in large part reflects his ability to translate the broad world of moving parts into something investable. "What has set Gross apart is his ability to understand the macroeconomic environment," she said. Whereas indexes and benchmarks are the standard tools for most fund managers, Gross considers myriad factors in his investment decisions. The result is an impressive track record of calling interest rates, not to mention fluctuations in the bond sector and foreign exchange markets.

This is why Gross was able to anticipate the housing crisis, caused in part by Wall Street's collective myopia. It demonstrated the dangers of focusing on one's narrow area of coverage, as well as the lucrative benefits of studying the interdependency of the world's financial markets. This has made him, and by extension Pimco, contrarian by default.

While a frightened world gobbled up Treasury securities amidst the financial crisis, Gross seized the opportunity to pick up the government-supported shares of companies considered "too big too fail" such as Citigroup Inc. and American International Group Inc. Gross, a perennial critic of Fannie Mae and Freddie Mac, also created a windfall profit for his fund when he bet against the government-sponsored mortgage giants.

Gross, who founded Pimco with two partners in 1971 and is its managing director and co-chief investment officer, has also excelled at surrounding himself with top-notch talent. "His ability to bring together very intelligent people makes him better and ensures that Pimco can continue to be strong over time, with or without him," Dolan said. This is exemplified by Mohamed El-Erian, Pimco's chief executive and co-CIO, as well as executives such as Michael Gomez, co-head of the emerging markets portfolio management team, and Paul McCuelly, Pimco's general manager.

So what does the future hold? Gross has said the post-crisis era will be one of slower growth and lower returns, a "new normal."

"Diminished growth, deleveraging and increased government involvement will temper profits and their eventual distribution to investors in the form of dividends and interest," he said in his December 2009 investment outlook. He also warned that the 0.01% yields on cash could stimulate formation of bubbles in gold, oil and other assets.

Obscenely low rates is a major motivator of Pimco's move into equities, with a special interest in utilities. As Gross sees it, utilities, and close relatives like telecom companies, yield 5% to 6% while long-term bonds yield less — and with a higher tax rate. "In a low-growth environment," he wrote, "it seems to me that a company's stock should yield more than its less risky debt, and many utilities provide just that opportunity."

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