Bill Gross

When the Pimco Total Return Fund finished 2006 up 3.7% — trailing the 4.2% average gain of its intermediate-term-bond peer group — tongues started wagging that legendary portfolio manager William Hunt Gross may have lost his magic touch.

When the Pimco Total Return Fund finished 2006 up 3.7% — trailing the 4.2% average gain of its intermediate-term-bond peer group — tongues started wagging that legendary portfolio manager William Hunt Gross may have lost his magic touch.

But what some viewed as misjudgment actually turned out to be a prescient, if a bit premature, call on the catastrophic meltdown of the credit markets.

“Bill Gross was calling for the mortgage crisis as early as 2005 and positioned his fund for it in 2006, which is why the fund’s performance slipped a little,” said Lawrence Jones, a senior mutual fund analyst at Morningstar Inc.

“Then in 2007 and 2008, it became evident that what he was doing was protecting shareholder capital,” he added.

Concern for capital preservation, as well as superior performance over the long run, is what investors and financial advisers have come to expect from Mr. Gross, the 65-year-old co-chief investment officer of Pacific Investment Management Co. LLC, the fixed-income powerhouse with $840 billion under management.

“When he talks, I will always listen, even if I don’t exactly agree and follow his direction,” said Lewis Altfest, president of the L.J. Altfest & Co. advisory firm, which has $500 million under management.

“Bill Gross is one of those people who has helped make bonds an investment alternative rather just a place to park money,” Mr. Altfest said. “He has actually made bonds a separate asset category with an opportunity for alpha.”

Mr. Gross’ $170 billion Total Return Fund, which carries a five-star rating from Morningstar and is the world’s largest mutual fund, has a 10-year annualized return of 7%, ranking it in the fourth percentile in the intermediate-term bond fund category. The average annualized return for the category over the period is 4.8%.

“There are only a few people in this industry who have really stood the test of time, and Bill Gross is one of them,” said Steve Lugar, managing director at BHCO Capital Management Inc., which has $250 million under advisement.

So confident is he in Mr. Gross’ abilities that Pimco funds are the only actively managed funds used at BHCO in an otherwise all-passive asset allocation strategy.

“You know what you’re getting with them because they seem to stick to their knitting,” Mr. Lugar said.

Sticking to one’s knitting seems to be an idiom custom-made for Bill Gross.

Ohio-born and California-raised, Mr. Gross lives in the same town and works at essentially the same company he joined after earning his MBA from the University of California, Los Angeles, nearly 40 years ago.

Last month, he purchased a $23 million waterfront property in his hometown of Newport Beach, which was interpreted by some as a sign he was even more committed to the long haul at Pimco.

Although he initially aspired to be part of what he saw as the more glamorous world of equity investing, Mr. Gross’ first job after graduating from UCLA was as a junior credit analyst with Pacific Mutual Life Insurance Co.

According to Timothy Middleton’s “Bond King: Investment Secrets from Pimco’s Bill Gross” (Wiley, 2004), today’s version of Pimco began to take shape in the early 1980s when Mr. Gross, along with colleagues James Muzzy and William Podlich, managed to shape the insurance company’s asset management operation into an independent business.

A 70% stake in that business was acquired in 2000 by Allianz Global Investors AG, the German financial services conglomerate, which paid $3.5 billion for its interest in Pimco.

According to published reports, Mr. Gross is now almost two years into his second contract with Allianz.

Pimco representatives refused to comment on his contract status or compensation.

Multimillion-dollar homes and contracts aside, most observers don’t see him riding off into the sunset just yet.

“Those guys work around the clock out there and he obviously loves what he’s doing,” said mutual fund consultant Geoff Bobroff, president of Bobroff Consulting Inc.

“He has been and continues to be very influential in the fixed-income world,” Mr. Bobroff added.

The influence seems to reach all levels of the financial-services industry.

Mr. Gross’ monthly Investment Outlook, which is posted on the company’s website, pimco.com, is considered a must-read.

“It’s not his job to teach us, but he shares his insights and they’re really important,” said Jim Porter, managing member at NewCentury Capital Management LLC, which manages $50 million in an ETF-only strategy.

“He puts a very complicated economic picture together and he always has some insights,” he said.

Mr. Porter recalls two recent instances when Mr. Gross’ insights helped guide his investment management decisions.

In September, just ahead of the market’s downturn, Mr. Porter picked up a comment from Mr. Gross regarding the increasing volatility of U.S. Treasuries, which led to a run on the government bonds.

More recently, Mr. Porter said he learned about the unique interest rate sensitivity of certain commodities from reading Mr. Gross’ commentaries.

“It gave some perspective that I didn’t have,” Mr. Porter said. “I consider him one of the very credible sources, and I set aside time whenever I know he’s going to be on TV.”

Such an influence also has a way of attracting critics, including those who have suggested that the manager of the world’s largest mutual fund could have ulterior motives for publicizing some of his opinions.

“There are people over the years who have questioned whether some of his comments have been self-serving for his own portfolios,” said Mr. Bobroff. “He clearly has the ability to move markets.”