4. Bill Gross: Adjust, Don't Alter, Course
Bill Gross, who studies stamps, toiled as a blackjack player before helping to found Pacific Investment Management Co., or Pimco, in 1971. Located in Newport Beach, Calif., Pimco began by managing institutional accounts for Pacific Life Insurance. In 2000, it became a subsidiary of German insurer Allianz. At the onset of 2010, assets under management surpassed $1 trillion, jumping 40% in a year on new client money and investment gains.
Gross and Co-Chief Investment Officer Mohamed El-Erian coined the term "new normal," a synonym for a slow-growth economy, that is now a staple of the Wall Street vernacular. In early 2009, Gross predicted an extended period of sluggish consumer spending, high unemployment and a string of sovereign debt crises. Gross' Total Return Fund, the world's largest mutual fund with more than $200 billion in assets, returned 18% in the past year.
The fund rose 4.8% in 2008, bolstered by timely purchases of agency-backed mortgage securities, as its average competitor lost 4.7%. Over a five-year span, it has gained 7.1% annually, on average, outperforming 98% of its peers. Gross' strategy for the fund is to purchase intermediate-term bonds in any sector. In 2009, the fund benefitted from a rally in Treasury, corporate and high-yield debt. Gross has consistently outperformed other managers by making calculated and gradual bets.
Gross is bullish on the debt of emerging markets and resource-rich, fiscally prudent developed economies such as Canada. He recently wrote, "Ah, but Dubai, Iceland, Ireland and recently Greece pointed to a fatal flaw in the model. Shaking hands with the government was a brilliant strategy in 2009 when it was assumed that governments had an infinite capacity to leverage themselves. But what if they didn't? What if — to put it simply — you couldn't get out of a debt crisis by creating more debt?"
3. David Tepper: Swing for the Fences
Pittsburgh's golden boy has established himself as one of the world's premier money managers. Tepper earned his stripes on the Goldman Sachs (Stock Quote: GS) high-yield desk. But he left to set up his own shop in 1992, frustrated by an elusive partnership stake. Tepper's hedge-fund company, Appaloosa Management, employs deep-value and special-situation strategies, investing in companies that others won't touch. Appaloosa has returned 38% annually, on average and before fees, since its inception.