May 10, 2012

PIMCO’s Gross Slashes Emerging-Market Debt Position

Risk markets need ‘more ammo’ if they are to stay up, Gross tweets

Bill Gross (left) and Liz Ann Sonders at Schwab Impact last year. Bill Gross (left) and Liz Ann Sonders at Schwab Impact last year.

Bill Gross is making some moves. After tweeting Tuesday that the U.S. was “getting closer” to QE3, Gross, who runs the world’s biggest bond fund, cut his holdings of emerging-market debt to a two-year low. He based the sales on areas in which the International Monetary Fund says growth will slow.

Bloomberg reports Gross reduced the securities to 7% of assets in that fund, PIMCO’s Total Return Fund, in April from 10% in March, citing the Newport Beach, Calif.-based company’s website. He trimmed investment-grade bonds to 13% from 14%. Treasuries were 31% of holdings, versus 32% in March.

The news service cited an April IMF forecast that growth in emerging economies will slow to 5.7% in 2012 from 6.2% in 2011. “Tumbling Treasury yields have led investors to look for more attractive rates, spurring a 9% gain this year for a Bank of America Merrill Lynch index of emerging-market sovereign and company bonds," the report said, adding that Gross said the economy needed more Federal Reserve stimulus for the rally in "risk" assets to continue.

“Risk markets need more ammo if they are to stay up,” Gross said Tuesday on Twitter.

Treasuries have returned 0.6% this year, according to Bank of America Merrill Lynch data.

Gross kept mortgage securities as his biggest holding at 53% of assets, according to the report posted Wednesday on the PIMCO website. The Fed will probably shift its focus to mortgage securities in its next round of purchases to keep borrowing rates low, Gross said in March.

Bloomberg reports that Gross increased the $258.7 billion Total Return Fund’s net cash-and-equivalent position to negative 18% from negative 23%. The fund can have a so-called negative position by using derivatives, futures or by shorting.

The Total Return Fund (PTTRX) has handed a 4.9% gain to investors this year, beating 99% of its peers, according to data compiled by Bloomberg. It is up 6.1% over the past 12 months, better than 66% of its competitors.  

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