UPDATE 1-Pimco Total Return Fund raised U.S. government holdings in July
NEW YORK, Aug 9 (Reuters) - Bill Gross' Pimco Total Return Fund, the world's largest mutual fund, increased its exposure to U.S. government-related securities in July, data from the firm's website showed on Friday.
The fund raised its holdings of U.S. government-related securities - its largest holding - to 39 percent in July from 38 percent in June. The fund also decreased its mortgage holdings to 35 percent from 36 percent in June.
The fund, which is the flagship bond fund of the Newport Beach, California-based Pimco, rose 0.49 percent in July after declining 2.64 percent in June, which was its weakest monthly performance since the financial crisis in September 2008.
The fund's performance turned positive in July as fears of rising U.S. interest rates eased, helping Pimco's overall exposure to U.S. Treasuries and government-related holdings. The fund has roughly $262 billion in assets, according to Morningstar. Pimco, or Pacific Investment Management Co, is a unit of European financial services company Allianz SE , which had $1.97 trillion in assets as of June 30, according to the firm's website.
Bonds sold off in May and June on fears that the U.S. Federal Reserve may begin winding down its $85 billion in monthly purchases of Treasuries and agency mortgages later this year.
Fears that interest rates will spike higher once the U.S. central bank begins reducing its bond-buying have weighed on demand for Gross' fund. Investors pulled roughly $18.4 billion from the Pimco Total Return Fund over May, June, and July, according to Morningstar data.
The Pimco website said that the fund's U.S. government-related holdings may include nominal and inflation-protected Treasuries, Treasury futures and options, agencies, FDIC-guaranteed and government-guaranteed corporate securities, and interest rate swaps.
Along with U.S. government-related securities, the Pimco Total Return Fund raised its exposure to money market and net cash equivalents to 3 percent in July from zero percent in June.
Meanwhile, the fund decreased its holdings of non-U.S. developed market securities to 3 percent in July from 5 percent in June, while also lowering its holdings of emerging market securities to 6 percent from 7 percent in June.
Gross's slight decrease of emerging market securities came as emerging market bonds rebounded in July. The Bank of America Merrill Lynch Emerging Markets Corporate Plus Index rose 0.93 percent in July. That marked a rebound from May and June, when the index fell 5.5 percent, its worst two-month decline since the fall of 2008.
The Pimco Total Return Fund's holdings of "other" forms of credit, which may include municipals, convertibles, preferreds, and yankee bonds, were unchanged at 5 percent in July.
Holdings of U.S. credit, which may include both high-yield junk debt and investment-grade securities, stood at 9 percent in July. The fund had 6 percent of holdings in investment-grade credit and 3 percent in high-yield credit in June.