Gross Raises Treasuries in Flagship Fund First Time Since April

Bill Gross, who runs the world’s biggest bond fund, increased his holdings of Treasuries for the first time since April as traders increased bets that the Federal Reserve would add to stimulus measures.

Gross raised the proportion of U.S. government and Treasury debt at Pacific Investment Management Co.’s $281 billion Total Return Fund (PTTRX) to 24 percent of assets last month, from 20 percent in September, according to a report on the Newport Beach, California-based company’s website. Mortgages remained the fund’s largest holding at 47 percent, down from 49 percent a month earlier. Pimco doesn’t comment directly on monthly changes in its portfolio holdings.

Fed Chairman Ben S. Bernanke on Oct. 24, in the last scheduled policy meeting before the presidential election, reiterated that the central bank would press on with the asset purchases until the labor market improves substantially. All 21 primary dealers that trade with the Fed expected its quantitative-easing measures to be expanded, according to a survey last month by Bloomberg News.

Ten-year notes rose in part this week on “a bid based upon the Bernanke expectation for easy money as far as the eye can see,” after the re-election of President Barack Obama, Gross said on Bloomberg Television’s “Street Smart” on Nov. 7.

Investors should buy municipal bonds, intermediate Treasuries and Treasury Inflation Protected Securities, Gross reiterated in the interview.

Fund Holdings

The Total Return Fund held steady its holdings of non-U.S. developed nations’ debt to 11 percent in October. Gross also kept the fund’s emerging-market debt at 8 percent and its municipal bonds holdings at 5 percent.

He cut investment-grade credit to 11 percent last month, from 12 percent in September. High-yield debt rose to 3 percent, from 2 percent in September.

Gross reduced the Total Return Fund’s net cash-and- equivalent position to negative 9 percent last month, from negative 6 percent in September. The fund can have a so-called negative position by using derivatives, futures or by shorting.

The fund attracted $2.4 billion in October as it continued to outperform peers. The 10th straight month of net deposits into the fund contributed to about $14.5 billion in new cash for the year through Oct. 31, according to the Chicago-based research firm Morningstar Inc. Deposits of $2.8 billion in September were the highest this year.

Fund Performance

Treasuries have returned 2.6 percent in 2012, while mortgages returned 2.6 percent, according to Bank of America Merrill Lynch indexes. Treasuries comprised 31 percent of the portfolio in April and were increased to 35 percent over the next two months before Gross began reducing his stake.

The Total Return Fund gained 11 percent over the past year, beating 94 percent of its peers, according to data compiled by Bloomberg.

The fund’s government and Treasury debt category includes fund holdings of U.S. Treasury notes, bonds, futures and inflation-protected securities.

Derivatives are financial obligations whose value is derived from an underlying asset such as debt, stocks or commodities. Futures are agreements to buy or sell assets at a later specific price and date.

Shorting is borrowing and selling an asset in anticipation of making a profit by buying it back after its price has fallen.

Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.92 trillion in assets as of Sept. 30.

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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