March 15, 2011

Bill Gross Launches Alternative PIMCO Total Return Fund

New fund omits riskiest high-yield strategies that made original Total Return Fund famous

PIMCO bond guru Bill Gross has made headlines once again, this time by launching a new version of his Total Return Fund that eschews the risky high-yield strategies that grew the original Total Return into the world’s largest mutual fund.

Called the PIMCO Total Return Fund IV in a February regulatory filing, the new fund will forgo high-yield debt, borrowing to create leverage and investing in derivatives such as options, Bloomberg reported in a news story on March 11.

The new fund will provide an alternative to the PIMCO Total Return Fund, but it won’t replace the original, Bloomberg reported.

Gross (left), the co-founder of Pacific Investment Management Co. in Newport Beach, Calif., is tinkering with a strategy that helped him beat 98% of rivals over almost 24 years and attract $25.1 billion of new deposits last year,” according to Bloomberg. “With Gross forecasting an end of the three-decade bond rally, PIMCO may be targeting investors who prefer a more conservative approach over the risks associated with excess yields, according to Francois Otieno, a senior fixed-income analyst at Hewitt EnnisKnupp, which advises institutional investors.”

On March 4, Gross was in the news when he urged lawmakers to cut the massive federal deficit. In response to the federal government’s projected

record budget deficits, Gross eliminated all U.S. Treasury debt from his flagship fund in February.

Gross wrote in his March investment outlook: “If on June 30, 2011 (the assumed termination date of Quantitative Easing II), the private sector cannot stand on its own two legs – issuing debt at low yields and narrow credit spreads, creating the jobs necessary to reduce unemployment and instilling global confidence in the sanctity and stability of the U.S. dollar – then the QEs will have been a colossal flop. If so, there will be no 15%+ tip for the American economy and its citizen waiters. An inflation-adjusted ‘negative buck’ might be more likely.”

Meanwhile, on March 3, PIMCO announced seven new hires with expertise in emerging markets and global equities.

“Recruiting the best talent is critical to the expanded offering to our clients of PIMCO quality equities solutions,” said Neel Kashkari, head of PIMCO’s New Investment Initiatives, in a statement.

PIMCO’s spokesman did not return calls for further comment.

Read more about the PIMCO Total Return Fund’s reduced Treasury exposure at AdvisorOne.com.

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