Donald Quigley and Richard Pell, who run the $214 million Julius Baer Total Return Bond Fund, are posting the best returns of any fund in...

Share story

Donald Quigley and Richard Pell, who run the $214 million Julius Baer Total Return Bond Fund, are posting the best returns of any fund in their class, outpacing managers including Bill Gross, the world’s biggest bond investor.

Quigley and Pell benefited from their decision to almost double their foreign-currency holdings last October in a bet against the dollar. Two months later, the dollar fell to a record against the euro. In September, the Julius Baer fund had 22 percent of its assets in non-U.S. dollar bonds from countries such as Mexico and Iceland, down from 28 percent in August.

“We look all over the world for opportunity,” said Pell, 51, who earned his living as a private investigator and poker player before getting into finance at age 28. “Some of the best winners have come from small markets. You have to go to places that are under-researched.”

The Julius Baer fund rose 6.4 percent in the past 12 months, as of Sept. 26, ranking first of 23 total-return-style funds that buy investment-grade government and corporate bonds, and keep intermediate maturities of three to 10 years, according to data compiled by Bloomberg. Gross’ $89 billion Total Return Fund ranks fifth in the group, up 3.2 percent.

Most Read Stories

Unlimited Digital Access. $1 for 4 weeks.

Julius Baer’s fund, managed from Julius Baer Investment Management’s headquarters in New York, also ranks No. 1 during the past five years, with an 8.3 percent annualized gain.

Gross’ fund, run from Newport Beach, Calif., is fourth in the same time period, rising by an average 7.1 percent a year.

The Julius Baer fund can have as much as 40 percent of its assets in non-U.S. debt and the same amount in foreign currencies. That compares with a 30 percent limit on non-U.S. dollar securities for Gross’ fund, prospectuses show. Gross had 3 percent of the Total Return Fund’s assets in foreign debt Aug. 31, according to data on the Web site of Pacific Investment Management, the company that manages the fund.

“If I’m competing with those guys, I think I’m doing a good job,” said Quigley, who oversees the fund on a day-to-day basis.

Gross holds French- and German-government debt and also has 2 percent of the fund’s assets specifically positioned to benefit from a gain in the yen, according to e-mails from Gross and Mark Porterfield, spokesman for Pimco, where Gross is chief investment officer.

The goal of the Julius Baer and Pimco funds is to provide total return, which takes into account investment gains and losses, plus income generated from securities held by the funds.

Foreign currencies helped fuel gains at the end of 2004, Quigley said. The Julius Baer fund’s bet against the dollar panned out as the currency fell to a record $1.3666 per euro Dec. 30 on concern about swelling U.S. trade and budget deficits.

As the dollar rebounded 13 percent this year against the euro, Quigley reduced the fund’s foreign-currency weighting. It was 21 percent Sept. 27, down from 39 percent in February.

The fund makes currency bets through the foreign bonds it buys, or through forwards, which are agreements to purchase or sell a currency at a set price on a specified date.

Outside the U.S., Mexico’s bonds and currency performed well, making the country’s debt the “shining star” of the fund’s international holdings in the past year, Quigley said.

At the end of last year, Quigley bought a Mexican-government bond maturing in December 2013 at a yield of about 10 percent. The yield, which moves inversely to the security’s price, fell to about 8.7 percent last month, still about 4 percentage points above similar-maturity U.S. Treasury notes.

The yields are “attractive in a low-yield world,” Quigley said. “They have oil, too, which doesn’t hurt.”