Bill Gross may have to drop ‘New Neutral’ moniker at Janus

One unexpected casualty of Bill Gross’ exit for Janus from Pimco, the firm he cofounded in 1971, might be his ability to use the term “New Neutral.”

Mr. Gross has repeatedly stressed the importance of professional investors being guided by a “master template” or “one big idea.”

“The New Neutral is critical to future investment success,” Mr. Gross wrote in July. “This currently is Pimco’s ‘one big idea.’”

The problem is Newport Beach, Calif.-based Pacific Investment Management Co. claims the term as its trademark and the money manager has filed with federal officials for registration of its trademark rights.

Following disagreements with other leaders at the firm, Mr. Gross abruptly left Pimco on Sept. 26, where he was chief investment officer with influence over the firm’s nearly $2 trillion in assets. He’s now a portfolio manager for Janus Capital Group Inc., which opened a new office a stone’s throw from Pimco’s headquarters.

If Pimco’s trademark claims are valid and not restricted by contract with Mr. Gross, Pimco could use its rights to “exclude others from using the same or confusingly similar marks,” according to Michael S. Connor, a Charlotte, N.C.-based lawyer who co-chairs the intellectual property practice at Alston & Bird.
“If there are valid trademark rights and they are owned by Pimco, then he would need to choose another dissimilar term,” said Mr. Connor.

If Mr. Gross is limited from using the term, he isn’t showing any signs of it. In an interview with InvestmentNews published Monday, Mr. Gross continued to emphasize the New Neutral as “critical to all asset markets.”

He called the New Neutral “a term I thought up four or five months ago.”

While Mr. Gross has been writing and lecturing about the New Neutral term since May, his claim of invention clashes with other accounts he’s given.

In an essay posted to the Pimco website on June 5, Mr. Gross appears to credit Richard Clarida, a New York-based executive vice president at Pimco, with coining the term.

On June 19, at a Morningstar investment conference for which he delivered a now-infamous keynote address, partly in sunglasses, Mr. Gross credited “an Australian team, a Pimco team,” which he said “first introduced New Neutral.”

“Having introduced the ‘New Normal’ in 2009 with much success but unfortunately no trademark protection, we now venture forward in time, hoping to store this new metaphor in a proverbial bottle, cellphone, or better yet — portfolio — to much fanfare and ultimately alpha generating success,” Mr. Gross wrote in June. “But a firefly it is not. To Pimco ‘the New Neutral’ has a more permanent status, a secular lifespan.”

Meanwhile, a March 17 Bloomberg News article with a London dateline used the unattributed term in quotation marks to describe the same concept. The reporter, Emma Charlton, did not respond to an emailed request for comment.

Pimco has said the term has guided its outlook since its annual “secular forum,” which took place from May 5 to 7 and included presentations by the Harvard University financial crisis scholar Carmen M. Reinhart, the FiveThirtyEight statistician Nate Silver and Anne-Marie Slaughter, the former director of policy planning for the U.S. State Department. The heady summit concluded with a pronouncement of the firm’s view of the world, which guides its investment strategy.

Pimco filed for registration of the trademark on May 16, according to federal records.

The firm is also claiming trademark rights in the short legal language at the bottom of its webpages.
The group of managers who have replaced Mr. Gross at Pimco continue to use the term.

A spokesman representing Janus did not respond to an emailed request for comment. A Pimco spokesman also did not provide a response to an emailed list of questions.

The New Neutral idea has been sketched out at some length. But the basic premise is this: Governments in developed countries have added debt and economies are growing slower. Those twin forces will push them to keep interest rates low to more easily enable repayment of that debt.

The view is important because bonds are extremely sensitive to changes in interest rates. Correctly, or incorrectly, forecasting rates can significantly impact performance. Pimco has said even though returns are likely to be low regardless, there will still be opportunities for investors to profit if they understand rate hikes will be slow in the U.S. and uneven globally.

Investors might, for instance, enhance returns by employing alternatives, take selective risks in other markets, or arbitrage the difference in economic climates between countries. In the meantime, they may continue to make considerable use of Treasuries.

But if rates move up faster, “then get out the life rafts because bonds wouldn’t be safe in that environment and stocks wouldn’t be safe” because of aging populations in developed economies and the increasing use of technology, among other factors, Mr. Gross said in the Oct. 1 interview.

That said, considering the fact that they are both relying on a similar macroeconomic forecast, the divergence between the performance of Mr. Gross’ Janus Global Unconstrained Bond Fund (JUCAX) and the Pimco Unconstrained Bond Fund (PUBAX) he used to run could offer a lesson in how other factors — like the size of a fund, the timing of tactical investing decisions and the use of exotic securities and trading strategies — also affect performance.

“As the fund grew, by the nature of managing a gigantic fund at Pimco, he had to take on a bigger picture macro view,” employing ideas like the New Neutral, said Sumit Desai, an analyst for Morningstar Inc. “His strategy is going to be a bit different than at Pimco. It’s going to be much less structured in terms of what to expect.”

Related Topics: Pacific Investment Management Company (Pimco)