What Bill Gross is buying and selling in his $252B fund

What Bill Gross is buying and selling in his $252B fund
Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., cut holdings of government-related debt and bought more mortgages in September.
DEC 03, 2010
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., cut holdings of government-related debt and bought more mortgages in September. The $252 billion Total Return Fund’s investment in government debt was cut to 33 percent of assets, from 36 percent the previous month, according to the website of Newport Beach, California-based Pimco. The fund boosted mortgages to 28 percent of assets, from 21 percent. Pimco doesn’t comment directly on monthly changes in portfolio holdings. Pimco’s U.S. government-related debt category can include conventional and inflation-linked Treasuries, agency debt, interest-rate derivatives, Treasury futures and options and bank debt backed by the Federal Deposit Insurance Corp., according to the firm’s website. Gross reduced holdings of government-related debt for the third straight month, after they accounted for 63 percent of assets in June, the highest since it held an equal amount in October 2009. Pimco’s emerging-market debt climbed by one percentage point to 12 percent, the highest since at least September 2006. High-yield holdings remained steady at 4 percent, and non- U.S. developed debt was unchanged at 6 percent. Pimco reduced its net cash-and-equivalent position to negative 3 percent from 2 percent. The Total Return Fund has returned 11.81 percent in the past 12 months, beating 74 percent of its peers, according to data compiled by Bloomberg. It gained 1.83 percent over the past month, a performance superior to 83 percent of competitors. Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.1 trillion of assets as of June 30. Yields on Treasuries maturing in five years and less have tumbled to record lows since the Federal Reserve said in August that it would revive purchases of government debt, a strategy known as quantitative easing. The Fed previously acquired about $1.75 trillion of Treasury and mortgage-related debt to sustain the recovery, concluding the program in March. Pimco said yesterday it sold Treasuries on expectations a second round of debt purchases by the central bank will have limited impact. End of Rally “Even if the QE process is large and rates decline further, in our view we’re approaching the end of the bond market rally,” Douglas Hodge, chief operating officer, said in an interview at the World Knowledge Forum in Seoul. “From where we sit, it’s very hard to suggest there’s going to be that kind of price appreciation that we’ve seen in bonds over the last 12 to 24 months.” Fed Chairman Ben S. Bernanke and his central bank colleagues are considering ways they can stimulate the economy as the unemployment rate holds near 10 percent and inflation falls short of their goals. “There would appear -- all else being equal -- to be a case for further action,” Bernanke said today in the text of remarks at a Boston Fed conference. The central bank could expand asset purchases or change the language in its statement, Bernanke said, while adding that “nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used.” The U.S. may face a prolonged period of stagnation should anticipated asset purchases by the Fed fail to invigorate economic growth, Pimco’s Gross said during a Bloomberg Television interview on “Street Smart” with Carol Massar and Matt Miller.

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