Bill Gross, manager of the world's biggest bond fund, cut
mortgage-backed securities and Treasury bonds holdings last month
while increasing holdings of junk debt.
The share of Treasury bonds in the $288.2 billion Total Return
Fund (PTTRX) at Pacific Investment Management Co. was 28% at the
end of February, compared with 30% in January, according to data
released Monday afternoon on the company's website. The Treasury
debt holdings include regular Treasury bonds and Treasury
Inflation-Protected Securities.
The share of mortgage-backed securities fell to 36% in February
from 37% in January and 42% in December. It was the eighth-straight
month in which Mr. Gross cut MBS exposure, though these securities
still account for the largest share of the fund.
In contrast, the share of junk bonds, or those rated below BBB-
but carrying higher yields than Treasury bonds and investment-grade
corporate bonds, ticked up to 3% from 2% in January.
In recent weeks, Mr. Gross has emphasized his investment
strategy for the new year: to keep taking profit from MBS, a stance
Mr. Gross revealed to the Wall Street Journal back in December. He
also stays away from longer-dated Treasury bonds and buy those
maturing between five and seven years.
Mr. Gross is worried the Fed's unconventional monetary stimulus
via bond purchases likely will push up inflation in the coming
years. In this case, longer-dated Treasurys, in particular the
30-year sector, will fall sharply in price as rising prices eat
into the value of the bonds over time.
Instead, Mr. Gross has been buying shorter-dated maturities as
these bonds still benefit from the Fed buying and their value is at
a lower risk of getting slammed by the inflation threat.
Like many other investors worried about inflation, Mr. Gross has
turned to TIPS to hedge inflation risk. The value of TIPS will be
adjusted higher if consumer prices climb.
In other categories, Mr. Gross held steady holdings for
investment-grade corporate bonds, municipal debt and
emerging-market bonds, which were 9%, 5% and 7%, respectively, for
the fund.
This year through Friday, Mr. Gross's fund broke even, faring
better compared with a loss of 0.76% from the benchmark--the
Barclays U.S. Aggregate Bond Index, according to data from fund
tracker Morningstar Inc.
The fund has a solid longer-term track record. Its annualized
return of 7.19% on average over the past 15 years beat a return of
5.84% from the benchmark.
Pimco, part of Allianz SE (ALV.XE, ALIZF, AZSEY), is one of the
world's biggest asset-management companies, with about $2 trillion
in assets under management.
Write to Min Zeng at min.zeng@wsj.com
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