*@?#»! Bond Trading and the Tyranny of Indexation

I religiously read Bill Gross of PIMCO. I particularly enjoyed this month's piece. Gross is talking to his clients about the problems of bond investing. Given that he sits on top of the biggest pile of bonds in the world, I find it always useful to pay attention to him. This month he discusses the problem of valuation, risk and indexing. He comes to some novel conclusions. Let me quote one line deep into the piece:

"What I'm suggesting is essentially this: to be successful in the future a money manager/plan sponsor must in today's market be willing to embrace more risk outside of index space by accepting (remarkably) less risk in absolute space. Ultimately your absolute returns should benefit and the volatility of those returns may in fact be significantly lowered."

This is a piece that is truly Outside the Box. Enjoy.