(Adds Gross comments)
(Reuters) – Bill Gross of Janus Capital Group Inc said on Wednesday that shorting the High Yield CDX index has benefited his Janus Global Unconstrained Bond Fund in the past few months.
“What I’m doing with Janus Unconstrained, is certainly not owning high-yield bonds, and in some cases, yes, shorting what we call High Yield CDX, the index,” Gross told cable television network CNBC.
The Markit CDX North American High Yield index is composed of 100 liquid North American entities with high yield credit ratings that trade in the CDS market.
Gross said illiquidity in the high-yield market, especially among high-yield exchange-traded and closed end funds, had been exposed. The Barclays U.S. Corporate High Yield index has fallen 1.3 percent so far this month through Tuesday.
Gross, who recommended in June shorting the China Shenzhen Composite Index before its huge slump, told CNBC on Wednesday: “It’s not necessary to short the Chinese stock market, matter of fact it’s very dangerous, what you do is you look outside the Chinese economy.”
He recommended taking advantage of the “increasing risk atmosphere” and volatility in other markets that the declining Chinese stock market generated.
Gross’ comments on high-yield ETFs came after activist investor Carl Icahn said earlier this month that he was concerned about illiquidity in the high-yield ETF market and feared the consequences of a potential sell-off in high-yield ETFs once the Federal Reserve hikes interest rates.
Gross’ recent string of bold calls at Janus, including his “short of a lifetime” trade against German Bunds, has not translated into profitable trades.
“My famous (infamous?) ‘Short of a lifetime’ trade on the German Bund market was well timed but not necessarily well executed,” Gross wrote in his June investment outlook report to clients. He did not elaborate on the execution of the transaction.
In addition, Gross never executed the China Shenzhen Composite Index short trade. (Reporting by Sam Forgione; Editing by Jennifer Ablan and Tom Brown)