Bill Gross's $200 Billion Fund
Flees U.S. Bonds Into Foreign
Latest data from PIMCO's Total Return bond fund shows how manager Bill Gross has massively shifted his funds' allocation into the foreign bonds of developed countries.
As shown in the table below, taken from the latest fourth quarter Pimco report, 'Non U.S. Developed' debt has jumped to 16% of the portfolio vs. just 3% the quarter before. That's an enormous shift in exposure given that it happend over just three months for this $200 billion fund.
Furthermore, he's slashed his exposure to both U.S. 'Government-Related' (to 32% from 48%) and 'Mortgage' (to 17% from 22%) securities. 'Net Cash Equivalents' meanwhile spiked to 8% of the fund vs. 2% in September. It's pretty clear Mr. Gross expects a rocky road ahead for U.S. fixed income:
PIMCO Q4 Total Return Fund Report: While PIMCO does not expect the Fed to tighten any time soon, there is still the question of how negatively markets will react as the Fed winds down its unorthodox policies that were designed to inject liquidity into the financial system. These policies include the Fed’s program of purchasing mortgage-backed securities.
The current environment is characterized by a high level of policy uncertainty and relatively rich valuations for many fixed income assets. This setting argues for caution in terms of overall risk exposure in portfolios, but PIMCO believes there are still a number of prudent strategies available to enhance potential
Emerging Markets and Currency – PIMCO plans to take exposure to high quality EM credits such as Mexico, Brazil, Korea and Russia, which have low levels of debt relative to the size of their economies. We also will look to take positions in select EM currencies, such as Brazil and China, anticipating that faster growth in these economies should allow their currencies to gain versus the U.S. dollar.
Inflation threat looms for bond investors
one question that dominates the investment outlook for the next few years, it’s
the question of inflation. If you think that inflation is set to roar, bonds
are trash and bonds with long maturities of 10 years or more qualify as
particularly toxic waste. On the other hand, if you think that inflation is
going to subside, bonds are your best friends and long bonds are an especially
So which is it going to be? The conventional line of thought is that inflation is likely to remain comatose for the foreseeable future because unemployment is so high and demand is so weak. But that may be too optimistic. John Hussman of Hussman Funds in Maryland delivers an insightful look at the causes of inflation in his weekly market comment. He argues that inflation is set to roar in the second half of this decade and forecasts that the U.S. consumer price index will roughly double over the next 10 years.
Hussman argues his case well. He shows that there has been little correlation over the past half century between growth in monetary base and inflation. On the other hand there has been a tight and dependable relationship between growth in federal spending and inflation. “The primary determinant of inflation is not monetary policy but fiscal policy,” Hussman asserts.
Given the massive amounts of government spending moving through the pipeline, it appears at least plausible that inflation will kick in viciously and surprise people who are buying long bonds with yields of under 4%. Hussman has his own fund tilted toward inflation-protected bonds and short-term Treasuries.Read more: http://network.nationalpost.com/np/blogs/tradingdesk/archive/2010/01/19/inflation-threat-looms-for-bond-investors.aspx#ixzz0dAZ9yaF0
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