Pimco Total Return Fund Cut U.S. Government-Related Holdings in Feb

By Min Zeng 

Pimco's Total Return Fund slashed U.S. government-related debt in February while it increased holdings of mortgage-backed securities and emerging-market assets.

The allocation suggested the fund joined a broad wave of selling in U.S. government bonds in February, driven by anxiety over the Federal Reserve potentially raising interest rates in June. The yield on the benchmark 10-year Treasury note jumped by over 0.3 percentage point last month, the biggest on a monthly basis since June 2013, after a sharp decline in January. Yields rise as bond prices fall.

The holdings of the $124.7 billion fund, the world's largest by assets, are being monitored by investors following the abrupt departure of longtime Total Return manager Bill Gross in late September. Clients pulled $8.6 billion from the flagship fund of Pacific Investment Management Co. in February, the 22nd consecutive month of withdrawals.

U.S. government-related holdings accounted for 35.29% at the end of February, compared with 37.71% at the end of January, and 43.19% at the end of December, according to data available late Tuesday afternoon on Pimco's website.

The Pimco fund's U.S. government-related holdings include Treasury bonds, Treasury inflation-protected securities, Treasury futures and derivatives linked to U.S. government debt securities.

The fund's holdings of mortgage-backed bonds was 32.86% at the end of February, compared with 30.27% at the end of January and 25.43% at the end of December.

The fund's emerging market holdings were 18.09%, compared with 17.94% at the end of January.

In other monthly reshuffling, the fund held 13.7% in U.S. corporate bonds, compared with 14.01% at the end of January.

Holdings in developed countries other than the U.S., which include sovereign debt sold by eurozone countries and the U.K. and Canada, were negative 2.7%, compared with 0.26% at the end of January. A negative share suggests the fund held a very negative view on these securities.

Mr. Gross surprised the investing world on Sept. 26 when he announced his departure from Pimco, which he co-founded in 1971, following a year of heavy outflows from the Pimco flagship bond fund and a fight with his former chief executive and heir apparent.

The Pimco fund posted a total return--including price changes and interest payments--of 1% this year through Monday, compared with the return of 0.35% on the benchmark index-the Barclays U.S. Aggregate Bond Index, according to data from Morningstar.

The fund improved its performance this year after a lackluster 2014. Last year, the fund's return was 4.69%, trailing the 5.97% return form the benchmark.

The fund's annualized average return over the past 15 years through Monday was 6.8%, beating 96% of its peers.

Write to Min Zeng at [e-mail]

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