April 9, 2013 / 10:16 PM / 5 years ago

UPDATE 1-PIMCO flagship fund raises U.S. Treasury holdings, cuts mortgages

By Jennifer Ablan and Sam Forgione

April 9 (Reuters) - The world’s largest bond fund, run by Bill Gross, increased its U.S. Treasury holdings to its highest level this year, partly in response to the Bank of Japan’s bold monetary stimulus, data from the firm’s website showed on Tuesday.

The PIMCO Total Return Fund, which holds $289 billion in assets, increased its exposure to Treasuries and Treasury-related securities to 33 percent in March from 28 percent the previous month. The fund also decreased its mortgage holdings to 33 percent from 36 percent.

Gross said on Twitter on Monday that investors should buy Treasuries because the BoJ’s monthly purchases of over 7 trillion yen ($75 billion) of long-term government bonds, a plan that was announced last week, will drive Japanese investors to seek higher returns in other markets overseas.

He said this will boost prices of assets around the world, including U.S. Treasuries. “Global Bond Bubble still inflating as BOJ prints $75 billion a month. Buy TIPS, Linkers, and (for now) Treasuries,” Gross wrote.

In his April letter to investors entitled “A Man in the Mirror,” Gross also said that central banks’, including the Federal Reserve‘s, aggressive monetary policies, may have changed the landscape so greatly that investors like himself and Warren Buffett may face radically new challenges in trying to maintain their track records. Gross said: “Investors should be judged on their ability to adapt to different epochs, not cycles.”

The Newport Beach, California-based Pacific Investment Management Co said on its website that the fund’s holdings of U.S. Treasury debt includes Treasury notes, bonds, futures and inflation-protected securities.

The PIMCO Total Return fund did not change its holdings of investment-grade credit, high-yield “junk” bonds, emerging markets, and non-U.S. developed markets of 9 percent; 3 percent; 7 percent and 11 percent, respectively, in March.

The PIMCO Total Return Fund earned a 10.35 percent return last year, besting 94 percent of funds that mainly hold investment-grade bonds with a duration of 3-10 years, according to Lipper. The fund has earned a 7.14 percent annualized return over the past three years, which is above that of 77 percent of its peers.

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