PIMCO’s Bill Gross Reconsiders Bearish Position on U.S. Treasuries

Pacific Investment Management Co. raised the allocation of U.S. Treasuries in its $242.7 billion Total Return Fund from 5% to 8%, indicating a softening of Bill Gross’ aggressively short position on Treasuries.

(July 14, 2011) – Pacific Investment Management Co. (PIMCO) has increased its allocation of U.S. Treasury holdings in its flagship Total Return Fund run by fixed-income guru Bill Gross, according to information released on the fund’s website.

The $242.7 billion Total Return Fund increased its allocation of U.S. Treasuries from 5% to 8% at the end of June, a move that runs counter to Gross’ frequent and vehement denunciations of the asset class.

“[PIMCO has] been selling Treasuries because they have little value within the context of a $75 trillion total debt burden,” Gross said in April. He had previously said that the Total Return Fund would move to hold no government debt for the first time in over two years, and urged investors to “revolt” against U.S. Treasuries.

The Total Return Fund is still significantly underweight Treasury bonds, well below the 32.56% on the benchmark Barclays Capital Aggregate Bond Index, indicating that Gross has not overcome his bearish position on U.S. Treasuries. Still, the reversal is noteworthy considering Gross’ recent comments on the attractiveness of ex-American debt over American Treasuries.

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The news comes as Moody’s Investors Service warned July 13 that it had placed the U.S. AAA bond rating under review, signaling their fear of a possible default. Congress has until August 2nd to raise the $14.3 trillion national debt ceiling, and as the deadline approaches fears of a default are heightened.



<p>To contact the <em>aiCIO</em> editor of this story: Benjamin Ruffel at <a href='mailto:bruffel@assetinternational.com'>bruffel@assetinternational.com</a></p>

Report: US ETF Assets Poised to Double by 2015

A new report by BNY Mellon and consultant Strategic Insight -- which analyzes the factors fueling the rapid expansion of the ETF market and how asset managers can profit from the expansion -- predicts that ETF assets will reach $2 trillion by 2015.

(July 14, 2011) — Assets in exchange-traded funds (ETFs) are projected to double to more than $2 trillion by the end of 2015, a report by BNY Mellon and aiCIO‘s sister company Strategic Insight shows.

The report — titled “ETFs 2.0: The Next Wave of Growth and Opportunity in the U.S. ETF Market” — revealed that ETF assets grew by 28% to just more than $1 trillion in 2010, down from the 47% growth rate in 2009. Furthermore, according to the report, roughly half of the U.S. ETF assets are from institutional clients.

According to Loren Fox, senior research analyst at Strategic Insight and an author of the report, investors are increasingly willing to use ETFs following the global financial crisis as they are increasingly willing to pay more for innovative products that promise greater return and lower volatility.

“The next wave of growth for ETFs is being driven by new asset classes, new indexes and new ways to use ETFs as tools for portfolio construction,” said Joseph Keenan, head of global exchange traded fund services at BNY Mellon Asset Servicing, in a release. “The ever increasing sophistication of these newly created ETFs can pose operational and distribution challenges for asset managers. However, with detailed planning and a focused strategy, a variety of innovative exchange-traded products can be brought to market to effectively meet investors’ needs.”

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The report follows a recent Greenwich Associates study that revealed that institutional investors are increasingly bullish on using exchange-traded funds (ETFs) in their portfolios.

“Perhaps even more telling than those findings is the fact that not a single asset manager reported plans to cut ETF allocations in the coming two years, and less than one in 10 institutional funds plan to reduce allocations to ETFs in that period,” says Greenwich Associates consultant Andrew McCollum.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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