Tags: Pimco | Gross | Gains

Pimco's Gross: Double-Digit Gains are Thing of Past

Monday, 02 April 2012 07:35 AM

Stocks and bonds have enjoyed a solid run for the past three decades, but investors need to get used to weak returns, as double-digit gains are a thing of the past, says Bill Gross, founder of Pimco, the world's largest bond fund.

For the past three decades, bonds have averaged an annual rate of return of more than 8 percent, while stocks have enjoyed an annual rate of return of just over 10 percent, according to Morningstar data, often spiking higher during bullish trends.

That's going to change, Gross tells CNNMoney.

"Investors should accept the near inevitability of less than double-digit returns," says Gross, according to CNNMoney.

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Bonds should post returns of around 3 percent, while stocks should produce gains of up to 6 percent.

A sluggish market coupled with rising inflationary pressures will make exchange-traded funds more attractive than mutual funds going forward, as such investment venues carry less costs and fees.

More exposure to big companies like Coca-Cola that operate heavily in higher-growth markets like Brazil and China will pay off as well.

Pimco has launched exchange-traded funds recently and plans to consider rolling out more such products.

On top of stocks in big multinational companies, Gross has said he prefers high-quality, short-duration and inflation-protected bonds when investing in debt.

Some noted market observers says stocks will continue to perform well, including Jeremy Siegel, a market historian at the University of Pennsylvania's Wharton business school, who sees the Dow Jones Industrial Average approaching 17,000 in 2013 from its current levels of around 13,000.

Stock prices are cheap by historical standards and will eventually brush off the dust from the 2011 Japanese earthquake and European debt crisis

"Not only based on past evidence on returns after we've had bad five and 10-year periods, which of course we've had in the past but I think most persuasively because of valuation of the market," Siegel tells CNBC.

"I think compared to bonds, it's one of the cheapest markets — stock markets — I've seen."

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Monday, 02 April 2012 07:35 AM
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