Pacific Investment Management Co.’s Bill Gross said asset markets from stocks to real estate are not overpriced because the Federal Reserve’s long-term policy rate will be half of what policy makers are forecasting.

“Estimates which average less than 2 percent are much closer to financial reality than the average 4 percent ’blue- dot’ estimates” of Fed policy makers, Gross wrote in his monthly investment outlook posted on Newport Beach, California- based Pimco’s website today. He was referring to the Fed’s neutral policy rate, a level that would be consistent with full employment, growth and stable prices.

The Fed’s March summary of policy makers’ economic projections, or SEP, had a median estimate for the long-run policy rate of 4 percent, unchanged from the December report. The median forecast was for the federal funds rate to move to 1 percent in December 2015 and 2.25 percent a year later. That compared with estimates in December of 0.75 percent and 1.75 percent.

Gross has stumbled in the past year after building one of the best long-term track records in the industry. Over the past year, his $232 billion Pimco Total Return Fund, the world’s largest bond fund, has lost 1.85 percent, trailing 90 percent of similar funds. Over the past five years, the fund is beating 57 percent of peers.

Lower Returns

While investors don’t face the risk of market bubbles if the long-run Fed policy rate proves lower than what Fed officials now foresee, they will suffer from lower-than-average returns, Gross wrote. Pension-fund assumptions of 7 percent to 8 percent total returns will prove too high, Gross wrote.

“Still there are ways to fight back -- most of which involve taking different risks than you may be commonly used to taking: alternative assets, hedge funds, leveraged closed-end funds, a higher proportion of stocks versus bonds in a personal portfolio,” Gross wrote. “All of these alternative are potentially higher-returning assets in a world of 2% policy rates where cash is a poor performing asset, but likewise a cheap liability that can be borrowed to an investor’s advantage.”

Implied yields on federal funds futures traded at the CME Group Inc. exchange signal a 51 percent probability the Fed will first increase its target rate in June 2015, according to calculations available on the exchange’s website.

Fed policy makers have cut their monthly debt buying by $10 billion increments at each of their last three meetings, lowering it to $55 billion. The Federal Open Market Committee will complete a two-day policy meeting today and probably will continue with reductions at that pace and end the program in October, economists said in a Bloomberg News survey last month.

Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.94 trillion in assets as of March 31.