PIMCO flagship fund raises Treasury holdings, trims mortgages

NEW YORK Fri Nov 9, 2012 6:30pm EST

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NEW YORK (Reuters) - PIMCO Total Return Fund, which is run by Bill Gross and ranks as the world's largest mutual fund, increased its exposure to U.S. government debt while continuing to trim mortgage holdings in October, data from the company's website showed on Friday.

The fund, which has $281 billion in assets, increased its exposure to U.S. government debt to 24 percent in October from 20 percent in September. It trimmed holdings of mortgage securities to 47 percent from 49 percent.

The fund, the flagship fund of Pacific Investment Management Co, had lightened its mortgage holdings to 49 percent in September from 50 percent in August while decreasing investment in U.S. government debt to 20 percent from 21 percent.

On September 13, the U.S. Federal Reserve announced a new round of economic stimulus, with a commitment to buy up to $40 billion in mortgage securities per month until the outlook for jobs improves substantially. The U.S. central bank also said it would keep interest rates ultra low until at least 2015. In late October, the Fed reiterated it would leave rates unchanged and stick to its bond-buying plan until the labor market improves substantially.

Gross, founder and co-chief investment officer of PIMCO, has criticized the effectiveness of the Fed's stimulus in recent letters to investors as well as the negative impact of low interest rates on savers.

PIMCO had $1.92 trillion in assets as of September 30. The company on its website said the flagship fund's holdings of government debt include U.S. Treasury notes, bonds, futures, and inflation-protected securities.

The Total Return Fund also lightened its holdings of corporate investment-grade credit to 11 percent in October from 12 percent in September while increasing exposure to riskier high-yield credit to 3 percent from 2 percent the prior month.

The fund is up 9.85 percent year-to-date and is beating 94 percent of peers, according to Lipper.

The Total Return fund also increased its use of U.S. dollar-denominated interest rate swaps and other rate-related derivatives, but left its holdings in U.S. agency government debt, non-U.S. developed countries' debt, emerging market debt, municipal debt, and "other" credit unchanged.

(Reporting by Sam Forgione; Editing by Leslie Adler)

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