The world's largest bond fund has sharply cut its bond holdings and increased its cash position.
After the cut, Pimco, short for Pacific Investment Management Company, held 54 percent of its $161 billion Total Return Fund's assets in mortgage bonds, down from 61 percent in May.
The 7 percent cut slashed the firm's mortgage bond investment portfolio to its lowest in almost two years, according to Bloomberg.
"The outlook for risk assets — stocks, high-yield bonds, and commercial and residential real estate will involve just that — risk," said Bill Gross who manages Pimco in the company's July investment outlook report.
Gross had two words for investors in Pimco's recent assessment of the investment environment: "secure income."
Bonds and dividend-paying stocks is the way to go, according to Gross.
Now, however, for the moment, cash seems especially attractive to him.
Pimco also told investors in its report to expect slower economic growth and thinner profit margins, skinnier perhaps than in the last 10 years.
Despite Pimco's less-than-enthusiastic view of the economy and a slippage in consumer confidence, down to 47 in July from 49.3 in June, the Dow is up 34 percent from its lows as better than expected earnings were reported, including major second quarter gains by Goldman Sachs and Intel
Not everyone agrees with Pimco. Eight firms which invest in mortgage-related securities are preparing to offer IPOs, according to The Wall Street Journal.
They believe mortgage-backed securities are undervalued and are counting on the government to provide financing.
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