Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said the investment company may reduce its risk profile in 2013 after posting higher-than-average returns this year.
With interest rates so low and corporate spreads so tight, “you have to be leery of prices going the other way,” Gross said in a radio interview on “Bloomberg Surveillance” with Tom Keene. Newport Beach, California-based Pimco “might begin a shift toward something safer, and something more clean in terms of those dirty-shirt investments.”
Gross wrote in his monthly investment outlook released this week that structural headwinds may reduce real economic growth below 2 percent in the U.S. and other developed nations. With globalization, technological and demographic changes restricting growth, investors should seek returns from commodities such as oil and gas, U.S. inflation-protected bonds, high-quality municipal debt and non-dollar emerging market stocks, Gross said, reiterating earlier recommendations.
Gross, who serves as co-chief investment officer with Chief Executive Officer Mohamed El-Erian, said Pimco’s investment committee will meet today to discuss the outlook for 2013.
Long maturity developed country bonds in the U.S., U.K. and Germany should be avoided, as well as high-yield debt and financial stocks of banks and insurance companies, Gross wrote.
Investors should anticipate annual returns of 3 percent to 4 percent from bonds at best and equity returns only a few percentage points higher, Gross wrote.
Shorter-maturity Treasuries look appealing given that the Federal Reserve likely ends debt sales of the securities when its Maturity Extension Program finishes in December and with some bank accounts losing government insurance, Gross said.
“There is an appeal strangely enough in the short-term area,” Gross said. “Twist is probably going to be off, so the sale of two- and three-year Treasuries will stop. There is a lot of money on deposit with banks that has been guaranteed. That money basically is not going to be guaranteed anymore. There are hundreds of billions of dollars that may come back into the short-term Treasury market.”
There is about $1.4 trillion in cash sitting in non- interest bearing transactions accounts with balances above $250,000 that is set to lose in January temporary insurance coverage put in place in 2008. The unlimited insurance was part of the Transaction Account Guarantee program, or TAG, implemented by the Federal Deposit Insurance Corp. in 2008 and extended by the Dodd-Frank Act in 2010 as a way to shore up banks during the financial crisis.