In anticipation of the Federal Reserve’s eventual interest rate hikes next year, Bill Gross has reduced holdings of U.S. government-related debt in his Total Return flagship fund and related actively managed exchange traded fund.
PIMCO has cut its allocation to U.S. government related debt in its Total Return Fund (PTTRX) to 45% in July, compared to 47% in June and 50% in May, reports Susanne Walker for Bloomberg.
The PIMCO Total Return ETF (NYSEArca: BOND), an actively managed ETF version of PTTRX, reveals a significantly lower position, with a 16% allocation toward U.S. government-related debt. [SEC Allows PIMCO to Trade Derviatives in BOND ETF]
U.S. Treasuries have been one of the better performing fixed-income assets this year as yields on benchmark 10-year notes fell from around 3.0% at the start of the year. For instance, the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF) is up 6.2% year-to-date. [Use Income Generating ETFs in a Low Growth Economy]
Gross, though, has been betting on short-term Treasuries, which have underperformed long-term debt this year. PTTRX shows a 6.21 year effective duration while BOND has a 5.43 year duration.
So far this year, BOND has outperformed its mutual fund counterpart, rising 4.6%, compared to PTTRX’s 3.9% gain.
Additionally, the fund manager diminished the fund’s mortgage-bond holdings to 20% in July from 22% in the previous month. BOND shows a 28% position in mortgage bonds.
Meanwhile, Gross raised non-U.S. developed exposure to 17% in his flagship fund, the most since December 2011, from 16%, and held emerging-market bond exposure steady at 9%. In comparison, the BOND ETF has a 24% position in non-U.S. developed debt and 1% in emerging market debt.
Emerging market bonds have also shown healthy gains as investors turned to higher yielding options in light of falling rates in the developed markets. For example, the iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEArca: EMB) is up 8.0% year-to-date and comes with a 4.45% 30-day SEC yield.
For more information on the fixed-income market, visit our bond ETFs category.
Max Chen contributed to this article.