Pimco's Bill Gross Rebuts Leon Cooperman on Treasurys Citing Risk for Stocks

Friday, 24 Feb 2012 08:21 AM

 

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Pacific Investment Management Co.’s Bill Gross said investors should be cautious about substituting dividend-paying stocks for Treasurys as there’s a “huge gap of risk” between the two types of assets.

Treasurys, rated a top AAA credit grade by Moody’s Investors Service and Fitch Ratings and AA-plus by Standard & Poor’s, returned 9.8 percent last year, their best performance since 2008, as Europe’s debt crisis intensified and concern mounted that global economic growth was slowing.

Stocks have an implied Baa rating, about seven steps lower than the highest investment grade, Gross said.

“Comparing Treasury yields to corporate stock dividends, spans a huge gap of risk,” Gross, manager of the world’s biggest bond fund, said during a Bloomberg Television “Street Smart” interview with Trish Regan. “Stocks can go down too, just like bonds, and we certainly saw that in 2008.”

Leon Cooperman, founder of hedge fund Omega Advisors Inc., said that buying Treasurys is the least attractive investment in a world of “financial repression.”

The Standard & Poor’s 500 Index yields 1.99 percent through dividends, while 10-year U.S. debt yields about 2 percent. The consumer-price index climbed 2.9 percent over the past 12 months, the smallest year-to-year advance since March 2011, the Labor Department reported Feb. 17 in Washington.

Bonds will be the worst place for investors to put their money for the next three years, Cooperman, 68, said in an interview on Bloomberg Television’s “InsideTrack” with Erik Schatzker.

‘Mortgages Make Sense’

Treasurys returned 14 percent in 2008, according to Bank of America Merrill Lynch index data. That compared with a 38 percent loss for the S&P 500 including dividends.

While Gross, 67, agreed with Cooperman that fixed-income investments are being eroded by interest rates below inflation, he said holding mortgage securities is an attractive way to bolster returns with the Federal Reserve suppressing yields.

“Yields are not going anywhere for the next two or three years,” Gross said. “Mortgages make sense.”

Gross boosted the proportion of U.S. government and Treasury debt in Pimco’s $250.5 billion Total Return Fund in January to 38 percent from 30 percent in December, according to a report placed on the company’s website. He raised mortgages to 50 percent, the highest since June 2009, from 48 percent in December.

Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.36 trillion of assets as of Dec. 31.

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