Pimco Total Return May Buy Equity-Linked Securities
Chart for PIMCO Total Return Fund (PTTRX)
Bill Gross’s Pimco Total Return Fund, the world’s largest mutual fund, is expanding its policy to allow investments in equity-linked securities for the first time since 2003.
Pimco Total Return may put as much as 10 percent of assets in securities including preferred stock and convertible bonds as early as the second quarter of next year, according to a filing today with the U.S. Securities and Exchange Commission. The fund won’t invest in common stock, the Newport Beach, California- based firm said.
Gross, who said in October that asset purchases by the Fed will probably signify the end of the 30-year rally in bonds, has invested the Total Return fund in a mix of government-related debt, mortgage securities and emerging market bonds. A top performer over the past five years, the fund trailed most of its large rivals during a debt selloff in the past month.
“This brings Pimco in line with other bond funds in the same category and gives them more flexibility,” Miriam Sjoblom, an analyst with Morningstar Inc. in Chicago, said in an interview. “In moderation, this could increase returns without adding considerable risk to the portfolio,” she said.
Kathleen Gaffney, who co-manages the $19 billion Loomis Sayles Bond Fund with Dan Fuss, said in August that the fund has increased investments in convertible notes, which can be exchanged for stock, to boost returns for investors.
Treasuries fell today, pushing the 10-year note yield to a seven-month high, as evidence the U.S. economy is recovering reduced demand for safety. The decline in bonds, which accelerated after the Federal Reserve on Nov. 3 pledged to buy an additional $600 billion in assets to revive the economy, prompted investors to pull money from taxable bond funds in the week through Dec. 8, the first week of net redemptions in two years.
Gross had reduced government debt for four straight months through October. Pimco Total Return, which according to Morningstar Inc. lost $1.9 billion to investor withdrawals in November, has declined 2.2 percent over the past month, trailing 93 percent of peers.
The $250 billion fund has advanced 7.8 percent in the past five years, beating 98 percent of similarly managed rivals over that period, according to data compiled by Bloomberg.
Pimco said in today’s filing that the move to invest in equity-related securities came after the fund’s board decided to repurchase shares owned by Japanese investors and end selling the fund there. Pimco Total Return stopped making equity-related investments in 2003 as Japanese securities law restricts such purchases for bond funds.
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