Bill Gross, head of the world's biggest mutual fund, put $17 million of his own wealth into closed-end bond funds in the past week even as a debt sell-off spurred investors to flee taxable-fixed-income funds for the first time in two years.
Mr. Gross, who manages the $250 billion Pimco Total Return Fund (PTTRX), bought five closed-end corporate-bond funds last week, just days after purchasing five municipal bond funds, according to filings with the Securities and Exchange Commission.
The purchases suggest that Mr. Gross sees value in debt even after investors pulled money from taxable bond mutual funds for the first time since December 2008. A sell-off in bonds has lifted the yield on 10-year Treasuries by more than a percentage point since Nov. 4, the day after the Federal Reserve pledged to buy $600 billion in assets to try to revive the economy. U.S. investors poured $252 billion into taxable-bond funds in the first 11 months of the year.
“The question is whether this is a bond market turning point,” said Eric Jacobson, a Morningstar Inc. fund analyst.
Mr. Gross, who reduced his fund's holdings of government debt for four straight months, said in October that asset purchases by the Fed probably will signify the end of the 30-year rally in bonds. The yield on the 10-year note touched a seven-month high yesterday on evidence that the economy is recovering, encouraging investors to unwind bets the securities will rise. Bond yields and prices move in the opposite direction.
Investors pulled $401 million from taxable-bond funds in the one-week period ended Dec. 8, the first net redemptions since the week ended Dec. 10, 2008, according to data released last week by the Investment Company Institute.
$1.7 BILLION WITHDRAWN
All bond mutual funds lost $1.7 billion to withdrawals during that week. Investors took out $2.7 billion from domestic stock funds, their 32nd straight week of redemptions, while stock funds that invest outside the U.S. attracted $1.3 billion, the ICI said.
Mr. Gross purchased shares of Pimco Income Strategy Fund (PFL), Pimco Income Strategy Fund II (PFN), Pimco High Income Fund (PHK), Pimco Corporate Income Fund (PCN) and Pimco Corporate Opportunity Fund (PTY) on Dec. 14, according to an SEC filing last week. On Dec. 13 and 14, he more than doubled his holdings in the funds to 2.37 million shares, filings show.
The week before, Mr. Gross also spent $4.4 million of his own money to purchase shares of five municipal bond funds run by Pimco. Mr. Gross added to shares in Pimco California Municipal Income Fund (PCQ), Pimco California Municipal Income Fund II (XPCKX), Pimco California Municipal Income Fund III (XPCZX), Pimco Municipal Income Fund (PMF) and Pimco Municipal Income Fund III (PMX) on Dec. 9 and Dec. 10, according to SEC filings.
That brings the fund manager's bond binge tally this month to $21.4 million.
Mark Porterfield, a spokesman for Pacific Investment Management Co. LLC, which runs the Pimco funds, declined to comment.
8.9% SLUMP
Shares of Pimco Municipal Income Fund III have declined 8.9% in price since Nov. 4. The shares are trading at about an 18% premium to the value of its underlying assets, according to data compiled by Bloomberg.
Pimco Corporate Income Fund has dropped 7.5% since the Fed's quantitative-easing plan was announced. The shares trade at less than a 1% discount to net asset value.
The Pimco Total Return Fund has beaten 98% of its peers during Mr. Gross' five-year tenure. The fund lost 2.4%, including reinvested interest, in the one-month period ended Dec. 14. It had its first withdrawals by investors in two years in November.
Pimco, a unit of Allianz SE, manages about $1.2 trillion in assets.
INFLATION EXPECTATIONS
Benchmark 10-year Treasuries have slumped since signs of an economic recovery and planned asset purchases by the Fed fueled expectations inflation will accelerate.
Investors began pulling out of municipal bond funds in November amid concerns about renewed inflation and a flood of supply from issuers. Withdrawals from municipal bond funds in the week ended Nov. 17 were $3 billion, according to Lipper FMI, the highest amount in almost 19 years.
High-yield managers such as
Fidelity Investments' Mark Notkin in Boston and Margaret Patel at San Francisco-based Wells Fargo & Co. said last month that they believe the bond fund rally is over and stocks represent a better buy.
