--Share of Treasury bonds in Total Return Fund at Pacific
Investment Management Co. rose to 30% at the end of January from
26% in December
--Share of mortgage-backed securities fell for seventh month in
a row to 37% last month from 42% in December
--MBS still accounts for largest share of the fund
By Min Zeng
For Bill Gross, the main trade during the first month of 2013
was cashing more chips out of the mortgage-backed securities and
stocking up on Treasury bonds for the world's largest bond fund,
which he runs.
The share of Treasury bonds in the $285.6 billion Total Return
Fund (PTTRX) at Pacific Investment Management Co. rose to 30% at
the end of January from 26% in December and 23% in November,
according to the data released on the company's website Monday
afternoon. The Treasury debt holdings include regular Treasury
bonds and Treasury inflation-protected securities.
In contrast, the share of MBS fell for a seventh month in a row
to 37% in January from 42% in December. MBS still accounts for the
largest share of the fund.
Mr. Gross, founder and co-chief investment officer at Pimco,
told Dow Jones Newswires in December that he continues to lighten
up on MBS, its main trade in 2012 that boosted the fund's
performance.
Early in 2012, Mr. Gross's fund placed bets that the Federal
Reserve would buy MBS as part of its efforts to support the
economy, making these instruments the largest holding in its
portfolio. That proved correct when the Fed launched an MBS-buying
program in September, lifting prices of these bonds.
In recent weeks, Mr. Gross has emphasized his investment
strategy for the new year: stay away from longer-dated Treasury
bonds and buy those maturing between five and seven years. He also
favors TIPS, and sovereign bonds sold by Italy.
Mr. Gross is worried that the Fed's unconventional monetary
stimulus via bond purchases likely will push up inflation in the
coming years. In this case, longer-dated Treasurys, in particular
the 30-year sector, will fall sharply in price as rising prices eat
into the value of the bonds over time.
Instead, Mr. Gross has been buying shorter-dated maturities as
these bonds still benefit from the Fed buying and their value is at
less risk of getting slammed by the inflation threat.
Like many other investors worried about inflation, Mr. Gross has
turned to TIPS to hedge inflation risk. The value of TIPS will be
adjusted higher if consumer prices climb.
"Investors should be alert to the long-term inflationary thrust
of such check writing" by the Fed, Mr. Gross said in his January
investment outlook. "While they are not likely to breathe fire in
2013, the inflationary dragons lurk in the 'out' years towards
which long-term bond yields are measured."
Pimco, part of Allianz SE (ALV.XE, ALIZF), is one of the world's
biggest asset-management companies, with about $2 trillion in
assets under management.
Write to Min Zeng at min.zeng@wsj.com