UPDATE 1-Pimco Total Return Fund adds U.S. gov't debt in October

Tue Nov 12, 2013 5:43pm EST

By Sam Forgione

NEW YORK Nov 12 (Reuters) - The Pimco Total Return Fund, the world's largest bond fund, increased its holdings of Treasuries and other U.S. government-related securities in October as the Federal Reserve maintained its bond-buying program, data from the firm's website showed on Tuesday.

The fund, which has $248 billion in assets and is run by Pimco co-founder and co-chief investment officer Bill Gross, increased those holdings to 37 percent in October from 35 percent in September.

That marked the biggest exposure to the securities since July and came as the Fed announced that it would maintain its $85 billion in monthly purchases of Treasuries and agency mortgages. The Fed's decision on Oct. 30 boosted prices on Treasuries and other bonds.

The Barclays U.S. Treasury Index rose 0.5 percent in October after recovering 0.7 percent in September. The Pimco fund rose 0.93 percent last month, notching its second straight month of gains.

The gain in October was lower than in September when the fund rose 1.8 percent after the Fed surprised investors by maintaining its stimulus, notching its best month since January 2012.

Pimco said on its website that its holdings of U.S. government-related securities may include nominal and inflation-protected Treasuries, Treasury futures and options, and interest rate swaps.

The holdings of Gross's fund are important because Pimco manages roughly $1.97 trillion and is one of the world's largest bond managers. Gross's, and co-chief investment officer and chief executive Mohamed El-Erian's, views on global credit also influence other investors.

The Pimco Total Return Fund is the flagship of the Newport Beach, California-based Pacific Investment Management Co, which is a unit of European financial services company Allianz SE .

While the fund likely benefited from its increased exposure to U.S. government securities in October, it slightly decreased its exposure to mortgages to 34 percent from 35 percent in September during a modest rally in mortgage bond prices.

The fund's exposure to mortgages in October marked the smallest allocation to the securities since May even as the Barclays U.S. Mortgage-Backed Securities Index rose 0.7 percent.

The fund also increased its stake in U.S. credit to 10 percent from 9 percent in September as prices on U.S. corporate bonds continued to rise. The benchmark Barclays Aggregate Bond Index rose 0.81 percent in October after rising 0.95 percent in September.

The firm said that its U.S. credit holdings may include both high-yield and investment-grade securities.

The fund decreased its exposure to money market and net cash equivalents to 4 percent in October from 6 percent. Pimco defines money market and net cash equivalents as liquid investment grade securities with durations of less than one year.

The fund's exposures to non-U.S. developed market securities, emerging market securities, and other securities were unchanged last month. Its non-U.S. developed market exposure remained at 4 percent, emerging markets at 6 percent, and other at 5 percent.

Pimco said that "other" securities may include municipals, convertibles, preferreds, and yankee bonds.

While Gross's fund earned its second straight month of positive returns in October after declines during a rough summer period, it remains down 1.45 percent this year, beating just 56 percent of peers, according to Morningstar.

Investors pulled $4.4 billion from the fund in October, marking its sixth straight month of withdrawals in response to the fund's performance dip this year and stripping the fund of its title as world's largest mutual fund, according to Morningstar data.

That title now belongs to the $251.1 billion Vanguard Total Stock Market Index, which is up 27.23 percent this year, beating 66 percent of peers, Morningstar data show.

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