Bill Gross Cut MBS, Boosted Treasury Holdings

Bill Gross in December boosted Treasury bond holdings in the world's biggest bond fund to the highest level since July while cutting mortgage-backed bond holdings to the lowest since October.

The share of Treasury bonds in the $285.4 billion Total Return Fund (PTTRX) at Pacific Investment Management Co. rose to 14% at the end of December, up from 11% in November, according to the data released on the company's web site Thursday afternoon.

Mr. Gross kept Treasury inflation-protected bonds unchanged at 12% for December and, including TIPS, the total holdings of Treasury debt rose to 26% from 23% in November.

In contrast, the share of MBS fell to 42% in December from 44%, the sixth straight month Mr. Gross cut exposure to the sector. MBS still accounts for the largest share of the fund.

The move confirmed Mr. Gross's comments late last month to Dow Jones Newswires that he continues to lighten up on MBS, its main trade in 2012 that boosted the fund's performance.

Early in 2012, Mr. Gross's fund placed bets that the Federal Reserve would buy MBS as part of its efforts to support the economy, making these instruments the largest holding in its portfolio. That proved correct when the Fed launched an MBS-buying program in September, lifting prices of these bonds.

Mr. Gross's fund handed investors a return of 10.4% in 2012, beating the 4.2% of the Barclays U.S. Aggregate Bond Index, according to data from fund tracker Morningstar Inc.

Over the past 15 years, the fund has posted an average, annualized return of 7.1%, compared to 5.8% from the benchmark index.

Mr. Gross is founder and co-chief investment officer at Pimco. Part of Allianz SE (ALV.XE, ALIZF), Pimco is one of the world's biggest asset-management companies, with about $2 trillion in assets under management.

Write to Min Zeng at [e-mail]

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