(Adds quotes from Bill Gross and details on Pimco Total Return
By Jennifer Ablan and Sam Forgione
NEW YORK, April 3 Bill Gross, manager of the
world's largest bond fund at Pimco, said on Thursday that asset
returns will be in the low- to mid-single digits this year
despite relatively positive economic growth.
Expectations for returns for all unleveraged assets and
diversified portfolios that attempt to reduce risk and maximize
return will be in the low- to mid-single digits, Gross said in
his monthly letter to investors.
Gross said Pimco recommends overweighting credit,
particularly corporate credit maturing within one to five years
as it "should hold current levels if inflation stays low."
The flagship Pimco Total Return Fund, which saw a net $3.1
billion of outflows in March and lagged 95 percent of its peers
on the month, according to preliminary Morningstar data, has
been significantly underexposed to corporate credit in recent
months. It has $232 billion in assets.
In his letter, Gross mentioned Harry Markowitz, one of the
pioneers of modern portfolio theory and a 1990 Nobel prize
winner, who recently claimed that alternative investments such
as hedge funds rarely offer the diversification benefits sought
by their investors.
"Overall, because 2014 should be a relatively positive
growth environment, carry trades in credit, curve and volatility
should produce attractive Sharpe (ratio)/information ratios,"
Gross said. The higher a fund's Sharpe ratio, the better a
fund's returns have been relative to the risk it has taken on.
"Return expectations however, for all unlevered assets and
Markowitz generated portfolios will be in the low- to mid-single
Eric Jacobson, senior analyst at Morningstar, has said the
Pimco Total Return portfolio began struggling in February as the
fund was "very underweight U.S. investment-grade corporate
bonds. That would have been a detriment given that the overall
investment-grade corporate index returned 104 basis points for
February, and returns were better the farther down you went in
Jacobson also said the Pimco Total Return Fund's performance
in March struggled because of its significant overweight
position in shorter debt and its underweight position in
In his letter on Thursday, Gross maintained his position on
favoring shorter-maturing debt. He said fixed-income securities
maturing in five years to 30 years are "at risk" given reduced
bond buying from the Federal Reserve. Gross said these bonds
that the Fed "has been buying will have to be sold at higher
yields to entice the private sector back in."
Pacific Investment Management Co, a unit of European
financial services company Allianz SE, had $1.91
trillion in assets as of Dec. 31, according to the firm's
(Reporting by Sam Forgione and Jennifer Ablan; Editing by Chizu
Nomiyama, Jeffrey Benkoe and Eric Walsh)