By Min Zeng
Bill Gross put money where his mouth is, warming up to Spain and
Italy while pulling back from the U.S.
Mr. Gross, manager of the world's biggest bond fund at Pacific
Investment Management Co., cut holdings of Treasury bonds in
September for a third month, bolstered by his worries that the U.S.
fiscal woes and highly accommodative monetary policy would erode
investors' confidence in the world's go-to safe haven asset.
At the same time, he boosted non-dollar bonds sold by developed
nations. The move confirmed his comments in an interview Friday
with Dow Jones Newswires that he has bought Spanish and Italian
government bonds in recent weeks after staying out of the debt
market from troubled euro zone economies since the start of the
year.
Mr. Gross, who runs Pimco's gigantic $278 billion Total Return
Fund, said the purchases were driven by the European Central Bank,
which signaled it will do whatever it takes to hold the euro
together. The bank unveiled a bond-buying program for the euro zone
in a bid to prevent the region's debt crisis from spinning out of
control.
The fund's non-dollar, developed debt holdings rose to 11% at
the end of September from 7% in August, according to data from
Pimco's website Wednesday.
In contrast, Mr. Gross slashed Treasury debt to 20% at the end
of September from 21% at the end of August and 33% at the end of
July. The share still puts Treasurys as the second largest for the
bond fund.
U.S. mortgage-backed securities, the No.1 asset class held by
the bond fund, was 49% compared to 50% in August and 51% in
July.
In recent months, Mr. Gross, founder and co-chief investment
officer at Pimco, has warned that Treasury bonds, especially
longer-dated maturities, would sell off if the U.S. fails to fix
its fiscal illness over the longer term.
Treasury bonds "could be burned to a crisp," Mr. Gross wrote in
his October investment outlook published earlier this month.
Mr. Gross is also worried that the Fed's printing money to
support the economy via its bond-buying program could generate
higher price pressure in the longer term, which erodes the fixed
return of bonds over time.
"We still have substantial Treasury positions but not longer
than 10 years in nominal Treasurys," Mr. Gross said.
Mr. Gross's fund has done well so far in 2012, benefiting from
bets this year on the Fed's buying mortgage-backed securities to
boost growth. The Fed did say in September that it would buy $40
billion of MBSs per month, with a pledge to keep buying until the
labor market shows sustainable and strong recovery.
Mr. Gross's fund has posted a 2012 return of 9.27% through
Tuesday, beating 90% of comparable bond funds and outperforming a
3.86% return on the benchmark Barclays US Aggregate Bond Index.
Over the past 15 years, the fund has handed investors an
annualized return of 7.38%, compared to 6.12% on the benchmark
index. Pimco, part of Allianz SE (ALV.XE, ALIZF), is one of the
world's biggest asset-management companies, with over $1.8 trillion
in assets under management.
Write to Min Zeng at min.zeng@dowjones.com
