I will admit up front that I admire and respect Bill Gross, and that didn’t change with his recent, widely publicized interview with the Financial Times, although a lot of people are using this as an opportunity to dump on Gross, who co-founded Pacific Investment Management (PIMCO).

Gross admitted he was wrong in betting against U.S. Treasuries in January, when the 10-year Treasury was yielding 3.5%. Now it is yielding 2.23%, an astounding decline from an already low yield. As of Monday, PIMCO’s flagship fund, Total Return, ranked 501th out of 589 bond funds in its category, FT.com notes.

“Do I wish I had more Treasuries? Yeah, that’s pretty obvious,” Mr Gross told the Financial Times last week, adding: “I get that it was my/our mistake in thinking that the US economy can chug along at 2 per cent real growth rates. It doesn’t look like it can.”

As 2011 progressed – but before this extremely volatile August – Gross was getting more vocal that ultra-low Treasury yields couldn’t be sustained. I have to admit that I agreed with Gross all along the way. The base yield on Treasury Inflation-Protected Securities was moving to negative all the way up to 10 years. That was amazing. And troubling.

My strategy at first was to sell out of TIPS mutual funds and move into total bond funds, which still have some Treasury exposure, but not 100%. I also have a sizable 401k investment in PIMCO’s Total Return Fund, my only broad-based bond fund option in the 401k. I didn’t abandon TIPS as a buy-and-hold investment, until this latest explosion of lower yields.

Since I hold Vanguard’s Total Bond Fund in other accounts, I appreciated the fact that Total Return was giving me some diversity away from U.S. Treasuries.

I think Gross was right. Except that he was wrong.

From the Financial Times:

Gross started to buy government debt, as well as related securities and derivatives, in recent months. However, he faces a challenge to catch up to the benchmark, which has returned 4.55 per cent for the year so far, versus the Total Return Fund’s 3.29 per cent, according to Lipper, a research group.

“When you’re underperforming the index, you go home at night and cry in your beer,” he said, adding: “It’s not fun, but who said this business should be fun. We’re too well paid to hang our heads and say boo hoo.”

So there it is. Total Return is under-performing its benchmark, 3.29% to 4.55%.

That’s not exactly crushing.

The fund’s five-year average return is 8.80%, versus 6.48% for the Vanguard Total Return Fund.