Pimco Total Return Fund adds Treasuries in tumultuous June

Mon Jul 15, 2013 7:59pm EDT
 
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By Sam Forgione and Jennifer Ablan

(Reuters) - The Pimco Total Return Fund, the world's largest mutual fund, increased its holdings of Treasury securities and mortgages in June as performance fell to its lowest level since the financial crisis, data from the firm's website showed on Monday.

The fund, run by Pimco founder and co-chief investment officer Bill Gross, increased its holdings of Treasury securities to 38 percent in June from 37 percent in May during a broad selloff in the bond market.

Gross wrote on social media platform Twitter on Monday that the federal funds rate - the central bank's benchmark short-term borrowing rate - is likely to remain between zero and 0.25 percent until 2016. That low interest rate is "still the key to value," he said.

"So the #Fed #tapers with 1% or less #inflation & GNP growth? Policy rate still the key to value however. On hold ‘til 2016," Gross wrote. Fifteen of the Fed's 19 policymakers in June had not expected to start raising rates until 2015 or later.

The Pimco fund also increased its holdings of mortgage securities to 36 percent in June, the most since last February, from 34 percent the prior month.

The fund was down 2.64 percent in June, marking its weakest monthly performance since September 2008, according to Morningstar. Investors pulled a record $9.6 billion from the fund last month, reducing its assets to roughly $268 billion, the Chicago-based Morningstar said.

The fund also showed a decrease in its holdings of non-U.S. developed market securities to 5 percent in June from 7 percent the prior month. Holdings of investment-grade and high-yield corporate bonds, as well as emerging market securities, were unchanged in June at 6 percent, 3 percent and 7 percent, respectively.

The Barclays U.S. Corporate High Yield Index fell 2.62 percent in June, notching its weakest performance since September 2011.   Continued...