NEW YORK (Reuters) - Bill Gross's Pimco Total Return Fund, the world's largest mutual fund, cut its holdings of U.S. government securities and increased its mortgage holdings in August, data from the firm's website showed on Wednesday.
The fund, which has $251 billion in assets, showed a decrease in its holdings of U.S. government-related securities, which may include nominal and inflation-protected Treasuries, to 35 percent in August from 39 percent in July.
The fund increased its mortgage holdings to 36 percent in August from 35 percent in July, making mortgages its largest holding.
The fund also increased its exposure to money market and net cash equivalents to 7 percent in August, up from 3 percent in July. Pimco defines money market and net cash equivalents as liquid investment grade securities with duration of less than one year.
Investors have pulled cash out of bond funds this year as rising interest rates have made fixed-income securities vulnerable to price losses. Gross and his co-chief investment officer at Pimco, Mohamed El-Erian, are watched closely because they have made money by anticipating big moves in the economy and interest rates well before other investors.
But the year has been a rough one for Gross and El-Erian.
The Pimco Total Return Fund is down 4.09 percent this year, above 25 percent of peers, according to Morningstar. The fund has seen a $41 billion drop in assets over the past four months as a result of price losses and investor withdrawals, according to Morningstar. That 14 percent drop in assets between the end of April and the end of August has left it with $251 billion, still making it the world's largest bond fund.
Gross's performance has likely suffered as a result of bets on Treasury Inflation-protected Securities, or TIPS, emerging market debt and corporate credit, said Morningstar fund analyst Michael Rawson.
In August, the Pimco Total Return fund kept its emerging markets exposure unchanged from the previous month at 6 percent.
In his April letter posted on PIMCO's website, entitled "A Man in the Mirror," Gross said the Federal Reserve's aggressive monetary policies may have changed the landscape so greatly that investors like himself and Warren Buffett may face radically new challenges in trying to maintain their track records.
Gross said the aggressive monetary policies of the Fed as well as other longer-term structural shifts in demographics, geopolitics and commodity supplies could make life harder for investors.
Gross has said that the Fed's monthly purchases of $85 billion in Treasuries and agency mortgage securities have propped up assets on just about everything, including stocks and bonds, resulting in their being overpriced. To keep performance high, some managers have gone beyond their comfort zones and expertise, taking on too much risk.
The Pimco Total Return Fund left its exposure in U.S. credit, which includes investment-grade and high-yield securities, at 9 percent in August. The category was previously separated into two sectors called investment grade and high yield.
Pacific Investment Management Co., a unit of European financial services company Allianz SE (ALVG.DE), had $1.97 trillion in assets as of June 30, according to the company's website.
Reporting by Sam Forgione and Jennifer Ablan; Editing by Diane Craft and James Dalgleish