Bill Gross has retired and there already has been research to see if he was the Warren Buffet of bonds. His fixed income track record over the long-run cannot be easily be matched, but a careful study of his portfolio suggests that his gains were generated differently than the classic stock-picker. He may have generated alpha but he did it the old fashioned way in fixed income, he took on more sector risk. See “Bill Gross’ Alpha: The King Versus the Oracle” by Richard Dewey and Aaron Brown.


Fixed income is different from equities given the high correlation across bonds. You are not going to be a bond-picker, but a sector risk premium allocator. What he did was focus on risk premia that he could overweight to his advantage against his peers. He stuck to his knitting of focusing the key risk premia of term premium, credit, and mortgages relative to a benchmark. 


There is no magic bullet for fixed income. Investors need to play the rate curve premia, take credit risk at the right times, and be willing to hold a negatively convex sector (mortgages) for higher returns versus traditional fixed income benchmarks which represent market capitalization of bonds outstanding. Gaining this edge is not always simple but it is straight-forward and the Gross edge was playing these premia for all their worth.