Bill Gross is nothing if not unconstrained these days.
The current top holding in the $1 billion Janus Henderson Global Unconstrained Bond fund is an apparently unhedged equity position in health insurer Aetna.
According to a Securities and Exchange Commission filing, which details the portfolio holdings for the fund at the end of September, Aetna was the fund's top holding at 15% of assets.
The filing states that Gross owned 816,110 shares of Aetna, amounting to $165.5 million in value.
The position is part of a merger arbitrage play on Aetna being acquired by CVS Health. Merger arbitrage strategies typically buy and sell the stocks of two companies in a merger to extract profit from price differences. The filing does not show a short position for either company.
CVS initially announced that it would purchase Aetna at $207 a share, but the final deal is set to close at $212 a share, valuing Aetna at about $69 billion, having been approved by the Departmenrt of Justice in October.
Gross told Barron's in June that he thought the deal looked lucrative and that the two companies presented an arbitrage of up to 10%.
In a June interview with CNBC, Gross hinted at the position when he talked about an ‘arbitrage type of idea’ that aims to take advantages of certain deals.
According to the fund's latest commentary the position has paid off, with equity arbitrage positions a positive contributor to performance.
'The fund’s equity arbitrage positioning... seeks to generate excess returns by taking advantage of the price differentials between the announced and closing prices of a corporate merger or acquisition,’ Gross wrote in the commentary. ‘The fund’s exposure to a health care deal was the main contributor for the M&A arbitrage strategy.’
Despite also enjoying positive returns from its position in the Brazilian real and short duration bonds, overall the fund underperformed its benchmark, the 3-month USD London Interbank Offered Rate index in the quarter, returning 0.28% compared to the index, which rose 0.58% over the same period, according to the most recent fact sheet.
This was due largely to the fund's bearish positioning in high yield, which was out of sync with wider market sentiment in that quarter.
Gross wrote in the commentary: 'We maintain the view that we are in the later stages of a credit cycle and this is largely not reflected in narrow spreads on corporate credits. Therefore, we constructed a position aimed at benefiting from a sell-off on high-yield credits. The period’s bullish sentiment, however, saw spreads tighten even further, with the result being losses on this positioning.'
A Janus Henderson spokesperson did not respond to requests for comments.