(Adds details on cash position and quotes from Gross's
By Sam Forgione
NEW YORK, April 9 The Pimco Total Return Fund,
the world's largest bond fund, cut its holdings of U.S.
government-related securities and mortgages for the second
straight month in March on continued bets that the Federal
Reserve will conclude bond purchases this year, data from the
firm's website showed on Wednesday.
The fund, which has $232 billion in assets and is managed by
Pimco co-founder and chief investment officer Bill Gross, cut
its holdings of U.S. government-related securities to 41 percent
in March from 43 percent in February, and cut its mortgage
holdings to 23 percent in March from 29 percent in February.
The fund's decreased holdings of mortgage securities in
March kept the stake at its lowest level since at least late
2011, while the decrease in U.S. government-related holdings
kept the stake at its lowest level since last November.
On March 7, Gross tweeted that investors should "Sell what
the Fed has been buying because they won't be buying them when
Taper ends in Oct."
The Federal Reserve, in an effort to spur hiring and lower
long-term borrowing costs, is now buying $55 billion in U.S.
Treasuries and mortgage-backed securities each month. The Fed,
which started its stimulus program in 2012 and continued until
December 2013 at an $85-billion pace, announced its latest cut
to its monthly bond-buying program after a two-day meeting that
ended March 19.
The Pimco Total Return Fund's asset allocation is important
because Pimco manages roughly $1.9 trillion and is one of the
world's largest bond managers. Pacific Investment Management Co
is a unit of European financial services company Allianz SE
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 also increased its U.S. credit holdings to 10
percent in March from 9 percent the previous month, its non-U.S.
developed market holdings to 10 percent from 9 percent in
February, and its holdings of "other" securities to 5 percent
from 4 percent in February.
The Pimco Total Return Fund showed 5 percent exposure to
money market and net cash equivalents, compared with zero
percent in February, as Pimco scaled back on its mortgage and
The fund's increase to its non-U.S. developed market
holdings kept the stake at its highest level since last April,
when the position was last at 10 percent. The increase to
"other" securities, which the firm said may include municipals,
convertibles, preferreds, and Yankee bonds, brought the stake to
its highest since last October.
The fund increased its effective duration to 4.97 years in
March from 4.71 years the previous month, and showed 5 percent
exposure to money market and net cash equivalents, compared with
zero percent in February.
Duration is a measure of a bond's price sensitivity to yield
changes, while Pimco defines money market and net cash
equivalents as liquid investment grade securities with duration
of less than one year.
The fund fell 0.57 percent in March, trailing the returns of
95 percent of its peers, according to Morningstar. The fund is
up 1.63 percent so far this year, trailing 86 percent of its
peers. Investors pulled $3.1 billion out of the fund in March,
extending its record outflow streak to 11 straight months.
Analysts have said that what hurt Pimco Total Return's
performance most in March was its significant overweight
position in shorter debt and its underweight position in
Short- and medium-term Treasury notes sold off, while
long-term Treasury bonds gained slightly in price, after Federal
Reserve Chair Janet Yellen said at a March 19 press conference
that the Fed would probably end its massive bond-buying program
this fall and could raise interest rates around six months
The Barclays 1-5 year U.S. Treasury index fell 0.3 percent
in March, while the Barclays 25+ year U.S. Treasury index gained
0.82 percent for the month. Short- and medium-dated bonds are
viewed as most vulnerable to a hike in overnight interest rates,
which are currently near zero. [ID: nW1N0L3003]
In his April letter to investors, 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: "While PIMCO agrees with Janet Yellen that such
normalization will be a long time coming (the 12th of Never?),
probabilities suggest that as the Fed completes its Taper, the
5-30 year bonds that it has been buying will have to be sold at
higher yields to entice the private sector back in."
(Reporting by Sam Forgione; Editing by Diane Craft, Jennifer
Ablan and Ken Wills)