Pacific Investment Management Co.’s Bill Gross, whose flagship fund suffered its first withdrawals since 2011 in May amid a selloff in Treasuries, said he is sticking to high-quality bonds as market risks are rising.
“Treasuries in the last few weeks have certainly been the place to be,” Gross, co-chief investment officer of Newport Beach, California-based Pimco, said during an interview today on Bloomberg Television’s “Market Makers” with Erik Schatzker and Sara Eisen. Stocks, high-yield debt, currency and emerging-market bonds are all in “disarray,” he said.
Global bonds had their worst month in nine years in May, led by Treasuries, as investors sold debt in anticipation central banks will eventually scale back their unprecedented asset purchases. The selloff left Gross’s Pimco Total Return Fund, the world’s biggest mutual fund with $293 billion in assets and one of the best performing, trailing 89 percent of peers in the past month as it declined 2.1 percent.
Gross, who has predicted that the three-decade bull market in bonds probably ended at the end of April, has raised holdings of U.S. government debt in his Pimco Total Return to 39 percent as of April 30, the highest level since July 2010.
“It has been good for Pimco to have been high-quality oriented and to have recognized the risk in terms of low yields and low future returns,” Gross said today.
Treasury yields fell yesterday by the most in almost two months after a report showed U.S. private employers added fewer jobs than forecast in May. The rally marked a reversal from last week, when 10-year yields climbed to a 14-month high as investors weighed whether the U.S. economy is strong enough to withstand a pullback of bond purchases by the Federal Reserve.
Gross’s fund suffered the first client withdrawals since 2011 in May, with clients pulling $1.3 billion from the fund, according to estimates from Morningstar Inc. in Chicago. The fund declined 0.6 percent this year, trailing 52 percent of peers, according to data compiled by Bloomberg. Over the past five years, Gross’s fund has advanced 7.6 percent, ahead of 93 percent of rivals.
Pimco holds TIPS, or Treasury Inflation Protected Securities, because it anticipates inflation over the next three to five years, Gross said. In the shorter term, as economic growth weakens and stocks decline, inflation will continue to be contained, he said.
DoubleLine Capital LP’s Jeffrey Gundlach said during a webcast presentation June 4 he dislikes TIPS because there isn’t any inflation and investors should wait to buy them at a lower price. Investors shouldn’t exit bonds and bond yields may drop to 1.7 percent by year-end because the global economy isn’t strong enough to allow for an end of quantitative easing by the world’s central banks, Gundlach said.
Gundlach’s DoubleLine Total Return Bond Fund advanced 1.5 percent this year, putting it ahead of 89 percent of rivals, and fell 0.6 percent during the past month, beating 81 percent of peers, according to data compiled by Bloomberg.
Gross said last month that the three-decade bull market for bonds, including Treasuries, corporate debt and mortgages, probably ended on April 29 as yields reached a low and prices peaked. He said on May 31 that Pimco likes Treasuries that mature in five to 10 years, as there will be “no tapering for now.”
Pimco is a unit of Munich insurer Allianz SE and manages $2.04 trillion in assets.