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(Bloomberg News) Bill Gross’s Pimco
Total Return Fund, the world’s largest mutual fund, is expanding its
policy to allow investments in equity-linked securities for the first
time since 2003.
Pimco
Total Return may put as much as 10% of assets in securities
including preferred stock and convertible bonds as early as the second
quarter of next year, according to a filing today with the U.S.
Securities and Exchange Commission. The fund won’t invest in common
stock, the Newport Beach, Calif.-based firm said.
Gross, who said
in October that asset purchases by the Fed will probably signify the
end of the 30-year rally in bonds, has invested the Total Return fund
in a mix of government-related debt, mortgage securities and emerging
market bonds. A top performer over the past five years, the fund
trailed most of its large rivals during a debt selloff in the past
month.
“This brings Pimco
in line with other bond funds in the same category and gives them more
flexibility,” Miriam Sjoblom, an analyst with Morningstar Inc. in
Chicago, said in an interview. “In moderation, this could increase
returns without adding considerable risk to the portfolio,” she said.
Kathleen
Gaffney, who co-manages the $19 billion Loomis Sayles Bond Fund with
Dan Fuss, said in August that the fund has increased investments in
convertible notes, which can be exchanged for stock, to boost returns
for investors.
Bond Selloff
Treasuries fell
today, pushing the ten-year note yield to a seven-month high, as
evidence the U.S. economy is recovering reduced demand for safety. The
decline in bonds, which accelerated after the Federal Reserve on Nov. 3
pledged to buy an additional $600 billion in assets to revive the
economy, prompted investors to pull money from taxable bond funds in
the week through Dec. 8, the first week of net redemptions in two years.
Gross had reduced government debt for four straight months through October. Pimco
Total Return, which according to Morningstar Inc. lost $1.9 billion to
investor withdrawals in November, has declined 2.2% over the
past month, trailing 93% of peers.
The $250
billion fund has advanced 7.8% in the past five years, beating
98% of similarly managed rivals over that period, according to
data compiled by Bloomberg.
Pimco
said in today’s filing that the move to invest in equity-related
securities came after the fund’s board decided to repurchase shares
owned by Japanese investors and end selling the fund there. Pimco
Total Return stopped making equity-related investments in 2003 as
Japanese securities law restricts such purchases for bond funds.
Pimco, a unit of Munich-based insurer Allianz SE, manages about $1.2 trillion in assets. Mark Porterfield, a spokesman for Pimco, declined to comment on the filing.
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