The fund, which has $232 billion in assets and is managed by Pimco
co-founder and chief investment officer Bill Gross, cut its holdings
of U.S. government-related securities to 41 percent in March from 43
percent in February, and cut its mortgage holdings to 23 percent in
March from 29 percent in February.
The fund's decreased holdings of mortgage securities in March kept
the stake at its lowest level since at least late 2011, while the
decrease in U.S. government-related holdings kept the stake at its
lowest level since last November.
On March 7, Gross tweeted that investors should "Sell what the Fed
has been buying because they won't be buying them when Taper ends in
The Federal Reserve, in an effort to spur hiring and lower long-term
borrowing costs, is now buying $55 billion in U.S. Treasuries and
mortgage-backed securities each month. The Fed, which started its
stimulus program in 2012 and continued until December 2013 at an
$85-billion pace, announced its latest cut to its monthly
bond-buying program after a two-day meeting that ended March 19.
The Pimco Total Return Fund's asset allocation is important because
Pimco manages roughly $1.9 trillion and is one of the world's
largest bond managers. Pacific Investment Management Co is a unit of
European financial services company Allianz SE.
Pimco said on its website that its holdings of U.S.
government-related securities may include nominal and
inflation-protected Treasuries, Treasury futures and options, and
interest rate swaps.
The fund also increased its U.S. credit holdings to 10 percent in
March from 9 percent the previous month, its non-U.S. developed
market holdings to 10 percent from 9 percent in February, and its
holdings of "other" securities to 5 percent from 4 percent in
The Pimco Total Return Fund showed 5 percent exposure to money
market and net cash equivalents, compared with zero percent in
February, as Pimco scaled back on its mortgage and Treasury
The fund's increase to its non-U.S. developed market holdings kept
the stake at its highest level since last April, when the position
was last at 10 percent. The increase to "other" securities, which
the firm said may include municipals, convertibles, preferred, and
Yankee bonds, brought the stake to its highest since last October.
The fund increased its effective duration to 4.97 years in March
from 4.71 years the previous month, and showed 5 percent exposure to
money market and net cash equivalents, compared with zero percent in
[to top of second column]
Duration is a measure of a bond's price sensitivity to yield
changes, while Pimco defines money market and net cash equivalents
as liquid investment grade securities with duration of less than one
The fund fell 0.57 percent in March, trailing the returns of 95
percent of its peers, according to Morningstar. The fund is up 1.63
percent so far this year, trailing 86 percent of its peers.
Investors pulled $3.1 billion out of the fund in March, extending
its record outflow streak to 11 straight months.
Analysts have said that what hurt Pimco Total Return's performance
most in March was its significant overweight position in shorter
debt and its underweight position in long-dated bonds.
Short- and medium-term Treasury notes sold off, while long-term
Treasury bonds gained slightly in price, after Federal Reserve Chair
Janet Yellen said at a March 19 press conference that the Fed would
probably end its massive bond-buying program this fall and could
raise interest rates around six months later.
The Barclays 1-5 year U.S. Treasury index fell 0.3 percent in March,
while the Barclays 25+ year U.S. Treasury index gained 0.82 percent
for the month. Short- and medium-dated bonds are viewed as most
vulnerable to a hike in overnight interest rates, which are
currently near zero.
In his April letter to investors, Gross maintained his position on
favoring shorter-maturing debt. He said fixed-income securities
maturing in five years to 30 years are "at risk" given reduced bond
buying from the Federal Reserve.
Gross said: "While PIMCO agrees with Janet Yellen that such
normalization will be a long time coming (the 12th of Never?),
probabilities suggest that as the Fed completes its Taper, the 5-30
year bonds that it has been buying will have to be sold at higher
yields to entice the private sector back in."
(Reporting by Sam Forgione; editing by Diane Craft, Jennifer Ablan
and Ken Wills)
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