Mortgage-backed securities may be toxic for many firms, but they're golden for Pacific Investment Management Co. (Pimco).
The firm's chief investment officer Bill Gross loaded up Pimco Total Return Fund's portfolio of mortgage-backed securities in September to the highest amount this year. At the same time, he stayed away from Treasury bonds for the ninth consecutive month.
The fund hasn't contained any Treasury bonds since December.
"I don't think you buy Treasuries. The return isn't there. They're obvious flight-to-quality vehicles," Gross said in an interview with Bloomberg.
The three-month Treasury bill yields a paltry 1.02 percent.
Pimco's Web site shows that the Total Return Fund, the world's biggest bond fund with $129.6 billion in assets, boosted its holdings of mortgage-backed securities to 79 percent of assets as of Sept. 30, up 10 percentage points from a month earlier.
The Total Return Fund's value has decreased just 0.57 percent in 2008, a better return than 90 percent of similar funds in the government and corporate bond category, according to Bloomberg data.
However, in the last three months, the fund has underperformed the benchmark it looks at to judge its performance, dropping 2.1 percent, compared to a 0.49 percent slump for the benchmark.
The same kind of bearishness that Gross expressed on Treasuries has even spread overseas.
"We've already seen a sharp rally in Treasuries, and the market is taking a bit of a pause," Nields From, chief analyst at Nordea Bank, Scandinavia's biggest lender, told Bloomberg.
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