Bill Gross: Returns will be half what they were

Investors shouldn't expect returns and profits ever to get back to the levels of a few years ago, Bill Gross, managing director and co-chief investment officer at Pacific Investment Management Co. LLC, told attendees of InvestmentNews' Virtual ETF Insights online conference this morning.
JAN 06, 2010
Investors shouldn't expect returns and profits ever to get back to the levels of a few years ago, Bill Gross, managing director and co-chief investment officer at Pacific Investment Management Co. LLC, told attendees of InvestmentNews' Virtual ETF Insights online conference this morning. “The new investment market is what we call the new normal,” Mr. Gross said in his keynote speech. “It's a world where growth slows down and where investment returns are half of what we have grown used to over the past 10 to 25 years.” Mr. Gross cited several reasons that advisers should lower their, and clients', expectations: • The United States is deleveraging as a result of the subprime mortgage crisis. “That means that banks don't loan money like they used to and it basically means that the small investor doesn't take risk as much as they had used to.” • The government's push to “re-regulation,” will keep profits and growth in check. “It probably slows the economy down,” Mr. Gross said. “To us, regulation and re-regulation are not an investor's friend.” • In a new climate of “de-globalization,” other countries are focusing more on their internal growth rather than expanding trade. As a result of these three factors, economic growth will be half of what it was—averaging around 4% annually. Profits will remain around 4% to 5%, instead of the previous levels of 8 to 9%, Mr. Gross said. Similarly, investors shouldn't expect the double-digit returns of the old days, Mr. Gross said. “This isn't a forecast that says, ‘Bear market, run for the hills,'” Mr. Gross said. “It's a world where if we have less growth, less leverage and the inability to siphon funds from Main Street to Wall Street, you'd better expect rates of return in the general vicinity of 5% to 6% total.”

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