PIMCO Total Return Bond Fund Cuts U.S. Government Holdings

Pimco Total Return is the biggest bond mutual fund in the world. It has a long-term track record that any bond fund would be jealous of. As a result, its fund manager, Bill Gross, has become something of an oracle of investing in bonds.

downtrendRecently, the mutual fund reported its holdings. Like all mutual fund reporting, the data provides only a snapshot of one day of holdings within the fund. The Wall Street Journal reports that the allocation of assets in the Total Return fund in U.S. Government bonds and securities dropped again to just 12 percent of the overall portfolio, down from 22 percent at the end of 2010.

Gross has become increasingly critical of the government’s intervention in the bond market and in particular of the Fed’s action to hold down interest rates by buying U.S. treasuries.  One can understand his frustration as these manipulations make it difficult for a money manager to do his job, regardless of their overall value (or lack thereof) to economic stability and growth.

The real irony is that with U.S. treasury yields depressed, and Gross having sold out almost anything he can at the Fed’s inflated pricing, there are few places to turn for higher yields.  The amount of the Total Return mutual fund allocated to the mortgage sector now stands at 42 percent.

If you want to follow this bond oracle down the investment trail, you’ll have to not only dump a large hunk of government bonds, you’ll need to step in and buy some more mortgage bonds.

Have a profitable Tuesday.

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