Bond king Bill Gross is one of the most closely watched investment advisers on the planet. That comes with a lot of prestige, but also a lot of scrutiny — such as critics maligning his “stocks are dead” call a few months ago, and more recently his rather JV insights about minimizing fees and reducing your investment risk as you age.
And let’s not forget his poor performance to start 2011, proving that even big shots can all the wrong shots some times.
But all of this aside, it’s always important to check out what Gross & Company are doing over at Pimco — because historically speaking, nobody is better at playing the bond market. And right now with QE3 and other central bank policies in focus, it’s more important than ever to get the pulse on Bill Gross and Pimco.
Litman Gregory’s No-Load Fund Analyst newsletter recently interviewed a portfolio manager who works with Gross on the Pimco Total Return Fund (MUTF:PTTAX). Excerpts of that interview include the following forward-looking strategies that are being employed at Pimco right now:
- Bill Gross and is Pimco team expect little movement in the Treasury yield curve up to the five- to seven-year point over the next several years. This is not just due to central bank moves like ZIRP and QE3, but also because of a decided lack of borrowing and credit in the private sector.
- Gross has shifted Pimco Total Return from a roughly 0% stake in U.S. government securities last year to as much as 41% in January and currently around 21% as of the end of August.
- Despite the recent reductions in Treasuries, Gross and Pimco remain focused on U.S. Treasury Inflation-Protected Securities (TIPS) on the idea that central bank policy will likely result in long-term inflationary fears despite stability in the short-term yield curve. Over the next three to five years, PIMCO expects to earn nominal returns of 3% to 3.5% from the TIPS they hold today, primarily longer-duration issues.
- Emerging-market bonds, particularly Brazil and Mexico, are providing opportunity. Bill Gross and Pimco seem to be betting on outperformance by emerging-market currencies remaining intact for the foreseeable future, though these emerging markets will not be without volatility as the world adjusts to lower growth rates.
So in summation: In the short-term it appears that emerging-market bonds provide volatile but high-yield alternatives to paltry U.S. Treasuries, and that in the long-term an investment in inflation-protected bonds could serve you well.
- Pimco also appears to be bullish on gold right now. (PIMCO)
- The newly minted BOND ETF has topped $3 billion in assets. (Nasdaq)
- Spanish and Italian debt are apparently also on Bill Gross’ radar. (WSJ)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.