Bill Gross is the Bond King. He got that nickname by building Pimco’s Total Return Fund from nothing into a $270 billion colossus over nearly three decades, which is the sort of thing you do by being very good at bonds. So when he told Business Insider by email this week about the best investment of his career, you might expect a heroic bond trade: some perfectly timed duration call, a great big short. No. The best trade the Bond King ever made was a pile of pipeline stocks he bought about three years ago, and the secret was not really the pipelines. It was the tax code.
The stocks are master limited partnerships, or MLPs, the publicly traded partnerships that own the unglamorous plumbing of the energy system. Gross pointed to Western Midstream Partners as an example and praised the “enormous” tax benefits. Here is the mechanism. An ordinary corporate dividend shows up in your account and the IRS takes its cut that year. An MLP distribution is largely treated as a return of capital rather than a dividend, so it is not taxed when you receive it; instead it reduces your cost basis, and the bill comes due only when you sell. And if you never sell? Deferred tax liabilities can be erased at death, when your heirs inherit at a stepped-up basis. The tax bill doesn’t just get postponed. It gets buried with you.
Meanwhile the yield is doing real work. Gross’s line is that “yields are twice similar corporate pipelines,” and the numbers he gave bear that out: Western Midstream pays a dividend yield of over 8%, while Kinder Morgan, a corporate pipeline giant, pays around 4%. Why would structurally similar assets pay such different yields? Gross has argued it’s partly a demand story: mutual funds face limits on how much they can hold in LP stocks, which caps the big institutional bid, shoring up distribution yields and keeping valuation multiples restrained relative to peers. The big money mostly can’t buy the thing, so the thing stays cheap, so the yield stays fat.
There has also been a macro tailwind. “Higher oil prices have been an extra boost,” Gross said, with the US-Iran conflict fueling a roughly 60% rise in crude prices since the start of this year and generating higher storage and distribution fees for energy infrastructure companies. Brent crude has topped $107 a barrel amid the fighting. The wonderful thing about a pipeline, as a business, is that you mostly don’t care whether oil is high or low; you care that it moves. War means it moves.
Gross has been making this case for a while. On his blog in October 2024, he worked through the compounding math: reinvesting distributions that haven’t been clipped by taxes can turn an 8% return into 9% or 10% over a five-to-10-year stretch, he argued. And he has lately dressed the trade up in the theme of the moment, writing last summer: “I continue to like MLP pipelines with their high tax-deferred dividends (7–9%) and future infrastructure prospects due to AI, AI information centers, electricity demand, and the natural gas needed.” Sure. The AI boom needs power, power plants need gas, gas needs pipes, pipes need owners, owners get 8% tax-deferred. It all connects.
The other end of the ledger
The worst trade of Gross’s career came much earlier, in 1969, shortly after he opened his personal account. He took $10,000 he had made playing blackjack, bought 30-year Treasurys with 10-to-1 leverage just months before starting at Pimco, and watched Treasurys promptly tank. “Lost 50% in 1 month,” he wrote. Do the arithmetic and the lesson teaches itself: $10,000 at ten-to-one is $100,000 of bond exposure, which means the market only had to move about 5% against him to vaporize half his stake. The bonds didn’t fail; the leverage did the killing. He has called it an “expensive lesson about the dangers of leverage,” told Financial Advisor the loss “wiped out half of my savings,” and drawn the obvious conclusion: “gambling belongs at the casino.”
There is something tidy about the fact that the man’s market education was funded by card counting. A blackjack player knows about edge, and about what happens when you bet more of it than you can survive losing. He just had to learn the second half of that sentence in the Treasury market, at scale.
As for how the pipeline thesis has worked out: Western’s total return, with dividends reinvested, has exceeded 200% over the past five years, and Energy Transfer LP, Plains All American Pipeline LP and MPLX, a Marathon Petroleum offshoot, have posted similar gains. Hess Midstream LP and Enterprise Products Partners LP have been more modest. The perfect version of the trade, of course, is the one where Gross never sells at all. It is the rare investment thesis whose final step is the investor’s own funeral, and the heirs send their regards to the IRS.