Bill Gross increased holdings of mortgage bonds in his flagship fund to the highest level since January as the Federal Reserve announced plans to reinvest housing debt into the securities to drive borrowing rates lower.
Pacific Investment Management Co.’s Gross boosted housing bonds to 38 percent of assets in his $242 billion Total Return Fund in September, from 32 percent the prior month, according to the Newport Beach, California-based Pimco’s website. Cash equivalents and money-market securities fell to negative 19 percent last month, from negative nine percent in August.
Yields on Fannie Mae and Freddie Mac mortgage securities that guide U.S. home-loan rates tumbled the most in more than two years relative to Treasuries after the Fed announced the purchases on Sept. 21 as part of a plan that’s become known as Operation Twist. The Total Return Fund’s holdings of Treasuries was unchanged at 16 percent last month.
After eliminating Treasuries from his Total Return Fund in February because they were too expensive, Gross has steadily increased his holdings in U.S. government securities as the debt last quarter posted the highest returns in almost three years. Pimco favors the so-called safe sovereign debt of nations that have the ability to raise monetary stimulus as the risk of recession in developed nations increases, Gross said during a Bloomberg Radio interview Oct. 7.
The global economy risks lapsing into recession with the pace of growth falling below the “new normal” level the firm has predicted since 2009, Gross said in a monthly outlook posted on Pimco’s website Oct. 3. Pimco predicted after the 2008 market collapse that the U.S. economy would grow at a below-average pace for several years as unemployment stayed elevated and the “heavy hand of government” would be evident in markets.
“Sovereign balance sheets resemble an overweight diabetic on the verge of a heart attack,” Gross wrote in the outlook. “If global policy makers could focus on structural as opposed to cyclical financial solutions, new normal growth as opposed to recession might be possible.”
The Total Return Fund returned 1 percent in the past year, trailing behind 83 percent of its peers, according to data compiled by Bloomberg. The one-month return is negative 2.83 percent, outpacing 2 percent of its competitors.
Treasuries returned 8.2 percent this year, according to Bank of America Merrill Lynch’s U.S. Treasury Master Index.
Pimco is a unit of Munich-based insurer Allianz SE. The firm managed $1.34 trillion in assets as of June.
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