Pimco datapoints of the day

By Felix Salmon
February 14, 2011
Total Return Fund is, by most measures, the largest fund in the world. A handful of sovereign wealth funds are larger, but none of them trade nearly as actively or aggressively as Bill Gross.

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Pimco’s $240 billion Total Return Fund is, by most measures, the largest fund in the world. A handful of sovereign wealth funds are larger, but none of them trade nearly as actively or aggressively as Bill Gross. Check out these two datapoints: in August 2010, the fund was 51% invested in US Treasuries. By January 2011, that number had declined to 12%. Which means that the Total Return Fund on its own liquidated over $90 billion in Treasury securities over the space of five months.

What happened, narrowly, is that Bill Gross changed his base view from worrying about deflation to worrying about inflation. But more broadly, he showed that he’s more than capable of repositioning his supertanker of a fund as easily and aggressively as if it were a hundredth of its size. He can do that because the Treasury market is the most liquid market in the world, and because he employs some spectacularly good traders.

Gross also showed, of course, that anybody following an “I’ll do what Bill’s doing” strategy is doomed to underperform. The holdings of the Total Return Fund are emphatically not what you should hold if you’re looking to work out your asset-allocation strategy over the medium or long term: instead, they’re held on an I-can-sell-these-at-any-time-I-want basis by arguably the greatest bond trader the world has ever seen. Which is why investing in the Total Return Fund (minimum investment: $1 million) makes a lot of sense. Copying it, by contrast, or trying to position yourself in light of Gross’s public pronouncements, makes no sense at all.

3 comments

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Gross was on Bloomberg radio a couple of months ago and was asked about PIMCO’s cash holdings. He stated that much of the cash was in fixed income futures. When PIMCO decreased its holdings recently was it the actual fixed income or did they just not roll over the future contracts?

Curious. Anyone know?

@CHris_Gaun
chrisgaun@gmail.com

Posted by Chris_Gaun | Report as abusive

My puny but fantastic savings bank offers the pimco total return fund in our 401k plan… minimum investment 1% of pay deducted by weekly.

Gross is right to dump T-bonds… From the end of WW2 to the present day the U.S. Treasury was the safest security possible. In my mind that era ended with QE. Treasuries will remain the worlds most liquid asset but will not provide the safety of a globally diversified portfolio of equities and corporate bonds which provide income streams in several different currencies.

Good luck staying ahead of the curve!

Posted by y2kurtus | Report as abusive

Now that the Total Return Fund is trailing 84% of its peers year-to-date, I think a reassessment of your recommendation is in order.

http://money.cnn.com/2011/08/30/markets/ bondcenter/bonds_pimco_bill_gross/

Posted by Stevensaysyes | Report as abusive