By Sam Forgione
NEW YORK Feb 11 The Pimco Total Return Fund,
the world's largest bond fund, increased its holdings of U.S.
government-related securities in January to notch a modest gain
for the month after Treasuries prices rose, data from the firm's
website showed on Tuesday.
The fund, which has $237 billion in assets and is managed by
Pimco co-founder and co-chief investment officer Bill Gross,
increased its stake in the securities to 46 percent in January
from 45 percent in December.
That marked the fund's highest exposure to U.S.
government-related securities since at least June of last year.
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 fund's asset allocation is important because Pimco
manages roughly $1.92 trillion and is one of the world's largest
bond managers. The Newport Beach, California-based Pacific
Investment Management Co is a unit of European financial
services company Allianz SE.
The fund also increased its mortgage holdings to 36 percent
in January from 35 percent in December. That marked the biggest
exposure to mortgages since August of last year, and remained
the second-largest stake in the fund.
The fund also increased its non-U.S. developed market
holdings to 7 percent in January from 6 percent, but cut its
U.S. credit holdings to 9 percent in January from 10 percent.
The firm said U.S. credit may include both high-yield and
The fund also showed a negative 8 percent exposure to money
market and net cash equivalents in January, after showing a
negative 6 percent exposure in December, and showed a reduced
effective duration of 5.05 years from 5.37 years in December.
Pimco defines money market and net cash equivalents as
liquid investment grade securities with duration less than one
In having a so-called negative position in cash equivalents
and money-market securities, it is an indication of using
derivatives and short-term securities as collateral in order to
boost the fund's buying power with leverage.
The fund left its holdings of emerging market securities
unchanged in January at 6 percent and its holdings of "other"
securities unchanged at 4 percent. The firm said "other"
securities may include municipals, convertibles, preferreds, and
The portfolio changes shed light on the fund's 1.35 percent
gain in January, which trailed more than half its peers,
according to Morningstar data. The performance also lagged the
1.48 percent gain of the benchmark Barclays U.S. Aggregate bond
The fund has done better so far in February, bringing its
gain to 1.77 percent for the year, which is surpassing 80
percent of its peers, according to Morningstar data. The
performance has also beaten the Barclays U.S. Aggregate bond
index's 1.63 percent gain for the year.
"Pimco believes that fixed income should be a key part of
any diversified portfolio, whether it be institutional or
retail, and we still see plenty of opportunities in the global
market for bonds for the patient investor," said Mark
Porterfield, Pimco spokesman.
U.S. Treasuries prices clinched their best month in January
since May 2012 after a rout in emerging market assets spurred
safe-haven bids. The yield on the benchmark 10-year U.S.
Treasury note fell 34 basis points over the month. Bond yields
move inversely to their prices.
While the fund benefited from the rally in Treasuries prices
in January, its emphasis on shorter-duration bonds limited its
gains, said Todd Rosenbluth, director of mutual fund research at
S&P Capital IQ.
Gross has recommended that investors buy shorter-dated fixed
income securities in recent months on his view that the Federal
Reserve will keep short-term interest rates low until at least
The Fed has kept the Federal funds rate, its benchmark
short-term borrowing rate, at 0 to 0.25 percent since late 2008
to help the economy recover from recession, and it has promised
to keep it there for a while longer, probably until 2015.
GROSS TOUTS CURRENT LEADERSHIP
Pimco, one of the most closely-watched bond investors,
shocked the investment industry last month when it said that
chief executive and co-chief investment officer Mohamed El-Erian
would leave in mid-March, leaving Gross as the sole chief
Pimco has named six managing directors as deputy chief
investment officers, a move that will position them for a
possible promotion to the CIO spot when Gross retires.
Gross touted Pimco's current leadership in his February
letter to investors. "Believe me when I say, we are a better
team at this moment than we were before," Gross said.
He also advised clients to "stick with PIMCO." Investors
pulled $3.5 billion out of Gross's flagship fund in January,
extending last year's record net outflows of $41.1 billion,
according to Morningstar. The fund's gain in January offset the
outflows, leaving the fund's size unchanged.
Analysts have said that investors pulled cash out of Gross's
fund last year in response to weak performance. The fund fell
1.92 percent in 2013, marking its worst annual loss in nearly
two decades, according to Morningstar data.