(Adds details on portfolio holdings and views from Gross's
investment letter; byline)
By Jennifer Ablan
May 9 The Pimco Total Return Fund, the world's
largest bond fund, cut its holdings of U.S. mortgage securities
for a third straight month in April to its lowest level since
July 2010 on continued bets that the Federal Reserve will
conclude bond purchases this year, data from the firm's website
showed on Friday.
The fund, which has $230 billion in assets and is managed by
Pimco co-founder Bill Gross, cut its mortgage holdings to 19
percent last month from 23 percent in March. The fund kept its
holdings of U.S. government-related securities unchanged in
April at 41 percent, Pimco said on its website.
Newport Beach, California-based Pacific Investment
Management Co said its holdings of U.S. government-related
securities may include nominal and inflation-protected
Treasuries, Treasury futures and options, and interest rate
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." In his latest Investment Outlook report,
Gross said investors should "look to different areas of risk
taking if you need higher returns."
The Federal Reserve, which has been buying mortgage-backed
securities and U.S. Treasuries in order to drive down long-term
borrowing costs and spur economic growth, on April 30 voted to
pare its monthly asset purchases to $45 billion, in its fourth
straight $10 billion cut.
Pimco Total Return's asset allocation is important because
Pimco manages $1.94 trillion and is one of the world's largest
bond managers. Pimco is a unit of European financial services
company Allianz SE.
Pimco increased its U.S. credit holdings to 12 percent in
April from 10 percent the previous month and increased its
emerging markets holdings to 7 percent last month from 6 percent
The fund has increased its non-U.S. developed market
holdings all year, with its stake at 11 percent in April.
Pimco's "other" securities category -- which the firm said may
include municipals, convertibles, preferreds, and Yankee bonds
-- remained at 5 percent of the portfolio's allocation.
Perhaps the most dramatic change to the Pimco Total Return
Fund last month was its reduction in its effective duration to
4.73 years in April from 4.97 years in March. Duration is a
measure of a bond's price sensitivity to yield changes.
Effective duration stood at 4.71 percent in February.
In his April letter to investors, Gross emphasized
underweighting duration and maintained his position on favoring
shorter-maturing debt. He said fixed-income securities maturing
in five 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."
Pimco Total Return showed 5 percent exposure to money market
and net cash equivalents in April, unchanged from the previous
month. It defines the class as liquid investment grade
securities with duration of less than one year.
(Reporting by Jennifer Ablan; Editing by Chizu Nomiyama and