Pimco Total Return cut US government debt to 45%

Bill Gross
Andrew Harrer | Bloomberg | Getty Images
Bill Gross

Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management, slightly reduced his holdings of U.S. Treasurys and government-related debt in July and notably decreased his use of derivatives.

Gross's Pimco Total Return Fund, with $223 billion in assets, had a still-high 45 percent of its assets in U.S. government-related holdings in July, down from 47 percent the previous month, according to Pimco's website on Monday.

But notable is Gross's move to decrease the Pimco Total Return fund's cash equivalents and money market securities, which showed negative 8 percent cash position in July, compared with negative 11 percent in June.

Having a so-called negative position in cash equivalents and money-market securities is an indication of using derivatives and short-term securities as collateral to boost the fund's buying power.

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At the moment, Gross's action does not look risky, with interest rates remaining at stubbornly low levels as Federal Reserve officials in June indicated they are in no hurry to raise the central bank's benchmark short-term interest rate.

"The shifts in the Pimco Total Return Fund looks pretty benign. Bill Gross took down leverage a bit through mortgages and Treasurys, which is slightly less bond bullish at the margin," said David Schawel, vice president and portfolio manager of Square 1 Financial.

Pimco's U.S. government-related category may include nominal and inflation-protected Treasurys, Treasury futures and options, agencies, FDIC-guaranteed and government-guaranteed corporate securities, and interest rate swaps.

The Pimco Total Return Fund also reduced its mortgage holdings in July to 20 percent, down from 22 percent in June, Pimco added.

The Pimco Total Return Fund had 17 percent of its assets in non-U.S. developed markets, up from 16 percent the previous month, while the fund had 9 percent in emerging markets, unchanged from the previous month.

Investors pulled cash from the Pimco Total Return Fund for a 15th straight month in July, although outflows were substantially smaller than in previous months.

The fund had net outflows of $830 million in July, the first time its monthly outflow was less than $1 billion since the net cash withdrawals started more than a year ago, Morningstar said.

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The fund has had about $65 billion in outflows since May 2013, the data showed. It had $223 billion in assets at the end of last month, down from a peak of $292.9 billion in April 2013.

The continuation of the fund's record outflow streak came as it posted a negative 0.52 percent return in July, lagging 90 percent of its peers, according to Morningstar. The fund is up 3.16 percent for the year as of Friday and trails 77 percent of its peers.

"The performance was not good in July, but it is up 70 basis points in August," Schawel said. "They are heavily tied to the front end, which has done great since the payroll report a few weeks ago."

—By Reuters.