NEW YORK Jan 23 Bill Gross, founder and
co-chief investment officer of bond giant PIMCO, said on
Wednesday that his firm is limiting its usage of derivatives and
that global stocks are attractive in light of coming inflation.
"We're basically becoming more and more of a cash-based type
of manager as opposed to what the concept is of derivatives,"
Gross said Wednesday at the ETF Virtual Summit in Irvine,
PIMCO, Pacific Investment Management Co., had $1.92 trillion
in assets as of September 30, 2012. Derivatives have long been a
staple of the trading strategy in Gross's PIMCO Total Return
Fund, the world's largest bond fund with over $285 billion in
The flagship fund, which invests mainly in investment-grade
bonds, may also invest up to 10 percent of its assets in
preferred stocks, convertible securities, and other
equity-related assets, according to the fund's prospectus.
Gross said that the advantage of derivatives like credit
default swaps, which are contracts that are used as insurance
against default on debt issues or to speculate on credit
quality, has diminished over time.
Gross also said that international stocks offer protection
against coming inflation.
"I think an investor wants inflation protection and, to a
certain extent, stocks do that," Gross said, and added that
"global, multinational franchised stocks" are particularly
PIMCO began moving aggressively into equities when it
launched its first actively managed stock mutual fund in 2010.
In his last letter to investors entitled, "Money for Nothin'
Writing Checks for Free," Gross said that money-printing
programs on the part of global central banks will eventually
lead to inflation.
"The policies are ineffective and, we would suggest,
increasingly ineffective. Which doesn't mean a recession, but it
does mean slow growth for a long period of time," Gross said on
Gross added that inflation, spurred by programs like the
Federal Reserve's purchases of agency mortgage and Treasury
securities at $85 billion per month, will most adversely affect
The PIMCO Total Return Fund earned a return of 10.36 percent
in 2012, besting 88 percent of U.S. intermediate-term bond
funds, according to Morningstar.
The PIMCO Total Return ETF, an actively-managed ETF
which is designed to mimic the strategy of the flagship bond
fund, outperformed the mutual fund last year with a return of
11.75 percent since its March launch, according to Lipper.
Actively-managed ETFs occupy a minor role in the nearly $2
trillion ETF and exchange-traded product space, since most of
the funds are passive and track a benchmark index.
At the end of 2012, just $14.7 billion was invested in
active ETFs and ETPs globally, according to Deborah Fuhr,
partner at ETFGI, an independent research and consulting firm in
London. That amount is just 0.8 percent of the $1.95 trillion
invested in ETFs and ETPs as of last year, Fuhr added.
Gross's Total Return ETF was far more popular than any other
active ETF, and attracted inflows of $3.5 billion over 2012,
according to Lipper. Big outflows from other active ETFs,
meanwhile, led to net inflows of just $111 million into the