Gross Raises Holdings of Treasuries to Highest Level Since July

Bill Gross raised the percentage of Treasuries held in his flagship fund to 26 percent in December, the highest level since July, while warning of the inflationary risks of stimulus programs such as quantitative easing.

The world’s biggest manager of bond funds increased the proportion of U.S. government and Treasury debt in Pacific Investment Management Co.’s $285 billion Total Return Fund from 23 percent of assets in November, according to a report on the company’s website. Mortgages remained his largest holding, though the percentage was reduced from 44 percent to 42 percent, the least since October 2011. Newport Beach, California-based Pimco doesn’t comment directly on monthly changes in its portfolio holdings.

Investors should avoid longer-maturity debt, as inflationary effects of Federal Reserve’s actions are likely to be felt many years in the future, and focus on short to intermediate securities that are supported by central bank policies, Gross wrote in investment commentary last week. He recommended U.S. five-year notes in a Twitter post Jan. 7, rather than securities such as 30-year bonds.

“It reflects the potential in the out years for higher inflation,” Gross said on Jan. 4 on Bloomberg Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle. “The long bond is certainly not an attractive asset.”

Holdings Categories

The Total Return Fund increased kept its holdings of non-U.S. developed nations’ debt at 12 percent last month. Gross cut the fund’s emerging-market debt to 7 percent, from 8 percent, and left its municipal-bonds holdings unchanged at 5 percent. The fund’s investment-grade credit holdings dropped to 10 percent last month from 11 percent in November.

High-yield debt remained steady at 2 percent.

The Total Return Fund gained 10.4 percent in 2012, beating 95 percent of its peers, according to data compiled by Bloomberg. Treasuries returned 2.2 percent last year, according to Bank of America Merrill Lynch indexes.

Gross recommended five-year Treasury securities after minutes of the Federal Reserve’s Dec. 11-12 meeting released last week showed “several” members of the policy-setting Federal Open Market Committee said it would “probably be appropriate to slow or stop purchases well before the end of 2013.” The Fed is in its third round of bond purchases under the quantitative-easing stimulus strategy.

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

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

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