February 11, 2014 / 11:46 PM / in 4 years

UPDATE 1-Pimco Total Return lifts U.S. gov't holdings to 46 pct -website

By Sam Forgione

NEW YORK, Feb 11 (Reuters) - 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 investment-grade securities.

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 year.

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 Yankee bonds.

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 index.

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 2016.

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.


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 investment officer.

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.

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