| NEW YORK
NEW YORK Dec 12 The PIMCO Total Return Fund,
the world's largest bond fund, reduced its exposure to mortgage
bonds and Treasuries in November after profiting as a result of
the Federal Reserve's stimulus measures, data from the firm's
Total Return, which is Pacific Investment Management Co.'s
flagship fund with nearly $285 billion in assets, cut its
exposure to mortgages -- its largest holding -- to 44 percent in
November from 47 percent in October, and cut its Treasury
exposure to 23 percent from 24 percent.
The company said on its website that the fund's holdings of
U.S. Treasury debt includes Treasury notes, bonds, futures, and
The fund has earned a 10.35 percent return so far this year,
besting 89 percent of other intermediate-term bond funds,
according to Morningstar.
PIMCO reported $1.92 trillion in assets as of Sept. 30.
PIMCO's holdings benefited as purchases by the Fed of
mortgage debt pushed up prices.
The Federal Reserve said on Wednesday it will continue to
purchase $40 billion per month in agency mortgage securities as
part of its bid to stimulate the economy. The Fed also said it
will purchase $45 billion in longer-term Treasuries per month
after the expiration at year-end of its "Operation Twist"
program, under which has been buying longer-term Treasuries with
proceeds from the sale of short-term debt.
By driving down interest rates on Treasuries and government
agency-backed mortgage bonds, the Fed has aimed to support the
housing market and also encourage investors to move out of
lower-yielding securities and switch into other assets such as
The average yield on agency mortage-backed securities is
approximately 2 percent, according to data provided by Angel Oak
Capital, while the 10-year Treasury yield was at 1.7005 percent
in intraday trading Wednesday. In comparison, the average yield
on agency mortgage-backed securities was approximately 3 percent
a year ago.
The Total Return Fund, which is run by PIMCO founder and
co-chief investment officer Bill Gross, has gradually reduced
its mortgage holdings. In September, the fund had 49 percent of
its portfolio in mortgage securities.
In his last investment letter of the year, Gross identified
housing as a bright spot in economic growth. He also reiterated
his view that emerging economies will grow faster than developed
ones and that investors should expect diminished returns from
both stocks and bonds.
The Total Return Fund also slightly reduced in its exposure
to high-yield credit, an asset class that Gross cautioned
against in his latest investment letter because of obstacles to
economic growth, to 2 percent in November from 3 percent.
The fund slightly increased its exposure to U.S. agency
government debt to 4 percent in November from 3 percent, and
slightly increased its holdings in non-U.S. developed countries'
debt to 12 percent from 11 percent.
The fund kept its exposure to municipal bonds, "other"
credit, emerging market debt, and investment-grade credit
unchanged in November.