- Bill Gross told Barron's that oil and gas pipelines are a top investment as he looks for alternatives to underutilized bond markets.
- He says these listed multiple limited partnerships offer strong returns with additional tax benefits.
- Gross has invested in “conservative” AI companies such as Microsoft and IBM, but has never owned NVIDIA.
Bond king Bill Gross's favorite investment right now is probably not what you think. Rather than seeking opportunities in the bond market, the legendary billionaire is investing in oil and gas pipelines.
Gross notes that Pipeline, which trades as a master limited partnership, has many of the yield characteristics of a bond. He likes it now because it has limited risk, tax benefits, and the stock market provides liquidity.
In a podcast interview with At Barron's, Gross explained why these partnerships are so appealing.
“First of all, by law, dividends are deferred until sold,” he said. “And secondly, mutual funds cannot buy partnerships in most cases, so there is a huge base of potential buyers who are locked out of the market because of regulatory laws.”
That translates to a tax-deferred yield of 8% to 9%, Gross said, adding that MLPs have appreciated 35% over the past 12 to 18 months.
“It was great. It's almost as good as AI,” he said.
Mr. Gross's new focus on MLPs is somehow a rejection of U.S. Treasuries, which the bond king no longer sees as a profitable trade. In an interview with Barron's, he explained that bond traders should not expect the same total returns as in the past, and that yields are likely to exceed 5% in the future.
“But where you find a bond equivalent with relatively stable returns, relatively low risk and very high tax benefits is in master limited partnerships, pipelines,” he said. “There are only six or seven of these left.”
Gross acknowledged that while MLP price growth has likely peaked, investors may still be able to take advantage of tax-deferred yield. He suggested that Energy Transfer and Western Pipeline are two companies worth looking at that have recently raised their dividends by 30% to 40%.
When it comes to more general market trends, Gross remains conservative when it comes to moving into artificial intelligence. He told Barron's that while he owns Microsoft and IBM, he will never own NVIDIA. The market has welcomed the AI chip maker's price momentum, but it's too volatile for Gross.
Previously, he tried to stake a deal on AI hopes with Broadcom, but was “whipped back and forth,” Gross said in a commentary in March.
But he also mentioned interest in the utility sector, as advances in AI will increase energy demand. Gross said there is potential for a bubble in these stocks, but the beneficiaries include Con Edison and Dominion.
