(Adds more details on Pimco flagship fund and Pimco no comment;
By Jennifer Ablan
NEW YORK, July 10 Bill Gross, who runs the
world's biggest bond fund at Pacific Investment Management Co,
slightly reduced his holdings of U.S. Treasuries and
government-related debt in June but increased his use of
derivatives on a bet the Federal Reserve will keep interest
rates low for longer than expected.
Gross's Pimco Total Return Fund, with $225 billion in
assets, had a still-high 47 percent of its assets in U.S.
government-related holdings in June, down from 50 percent the
previous month, according to Pimco's website on Thursday.
But notable is Gross's move to increase the Pimco Total
Return fund's cash equivalents and money market securities,
which showed negative 11 percent cash position in June, compared
with negative 9 percent in May.
Having a so-called negative position in cash equivalents and
money-market securities is an indication of using derivatives
and short-term securities as collateral to boost the fund's
At the moment, Gross's action does not look risky with
interest rates remaining at stubbornly low levels as Federal
Reserve officials last month indicated they are in no hurry to
raise the central bank's benchmark short-term interest rate.
A spokesman for Pimco, which is owned by Allianz SE
, a global diversified financial services provider,
declined to comment on sector holdings.
In June, Gross said the firm believes the "new neutral"
inflation-adjusted federal funds rate will be close to 0 percent
as opposed to 2 percent to 3 percent in prior decades.
"If 'The New Neutral' rates stay low, it supports current
prices of financial assets," Gross said.
Pimco, which manages $1.94 trillion in assets, introduced
its new-neutral outlook in May. New neutral suggests the global
economy is transforming from a post-financial crisis recovery
period called the New Normal in 2009, to stability characterized
by modest economic growth over the next three to five years.
Pimco's U.S. government-related category may include nominal
and inflation-protected Treasuries, Treasury futures and
options, agencies, FDIC-guaranteed and government-guaranteed
corporate securities, and interest rate swaps.
The Pimco Total Return Fund, meanwhile, kept its mortgage
holdings unchanged in June at 22 percent, while slightly
increasing its U.S. credit holdings to 12 percent in June, from
11 percent in May.
The Pimco Total Return Fund had 16 percent of its assets in
non-U.S. developed markets in June, up from 13 percent the
previous month, while the fund had 9 percent in emerging
markets, up from 8 percent the previous month.
The Pimco Total Return Fund posted $4.5 billion in net
outflows for June, its 14th straight month of investor
withdrawals despite an improving performance.
The outflow streak continued despite the fund's 0.37 percent
gain in June, which beat 88 percent of peers, according to
Morningstar. That said, the fund was up 3.48 percent for the
year and trails 74 percent of its peers.
(Reporting By Jennifer Ablan; Editing by Diane Craft and Steve