Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said the investment company may reduce its risk profile in 2013 after posting higher-than-average returns this year.
With interest rates so low and corporate spreads so tight, “you have to be leery of prices going the other way,” Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene.
Gross wrote in his monthly investment outlook released this week that structural headwinds may reduce real economic growth below 2 percent in the U.S. and other developed nations. With globalization, technological and demographic changes restricting growth, investors should seek returns from commodities such as oil and gas, U.S. inflation-protected bonds, high-quality municipal debt and non-dollar emerging market stocks, Gross said, reiterating earlier recommendations.
Long maturity developed country bonds in the U.S., U.K. and Germany should be avoided, as well as high-yield debt and financial stocks of banks and insurance companies, Gross wrote.
Investors should anticipate annual returns of 3 percent to 4 percent from bonds at best and equity returns only a few percentage points higher, Gross wrote.
Gross, the founder of Pimco, raised the proportion of U.S. government and Treasury debt in his flagship $285 billion Total Return Fund to 24 percent of assets in October, the first increase since April, as investors speculated the Federal Reserve would add to stimulus measures through more asset purchases, according to the latest available company data. Mortgages remained the fund’s largest holding at 47 percent.
The Total Return Fund gained 11.7 percent over the past year, beating 94 percent of its peers, according to data compiled by Bloomberg. The fund has returned 8.5 percent over five years, outperforming 97 percent of competitors.
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