Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co. LLC, cut the fund's holdings of Treasuries last month and instead bought mortgage-backed bonds.
He reduced the proportion of U.S. government securities in Pimco's $252 billion Total Return Fund to 37% of assets, from 38% in January, according to a report on the company's website. Mr. Gross raised mortgages to 52%, from 50%, the highest level since June 2009.
Pimco doesn't comment directly on monthly changes in its holdings.
U.S. government-backed-mortgage bonds had returned 0.59 percentage point more than similar-duration Treasuries this year through March 11, according to Barclays Capital index data. Mortgages have gained in part on speculation that the Federal Reserve may expand purchases of the securities as part of its stimulus measures to keep the economic recovery going.
“We like mortgages at the moment,” Mr. Gross, co-chief investment officer and founder of Pimco, said in a Bloomberg Radio interview. “Mortgages are a potential source of Fed purchasing going forward.”
In January, Mr. Gross raised the fund's U.S. government and Treasury holdings to the highest level since July 2010 after missing a market rally by eliminating the securities from the portfolio last year.
The Total Return Fund attracted $835 million in investor deposits last month as performance rebounded.
February is the second month in a row in which assets flowed into the fund, after three straight months of redemptions, according to data compiled by Morningstar Inc. Investors pulled about $3 billion from the fund in the three-month period through Dec. 31, bringing withdrawals last year to $5 billion, Morningstar said.
Mr. Gross' fund had returned 6.34% in the 12-month period through March 11, beating 45% of its peers, according to data compiled by Bloomberg. It had gained 2.91% this year, beating 96% of its peers.
Meanwhile, Treasuries had lost 0.5% in 2012 as of March 11, compared with a return of 9.8% last year, Bank of America Merrill Lynch's Treasury Master Index shows.
Pimco increased holdings of emerging-markets debt to 10% last month, from 9% in January, and reduced bonds of non-U.S. developed nations to 7%, from 11%.
Mr. Gross pared the net-cash-and-equivalent position of the Total Return Fund (PTTRX) to -31%, from -35% in January. It can have a so-called negative position by using derivatives, futures or by shorting.
Mr. Gross recommended last month that investors embrace a defensive strategy because of the limits of zero-bound interest rates and systemic debt risk in global financial markets.
"INVESTMENT DEFENSE'
“Emphasize income, de-emphasize derivative structures that are fully valued and be willing to accept returns lower than historical averages,” he wrote in his monthly investment outlook, posted on the company's website Feb. 28.
“The offensively oriented investment world that we have grown so used to over the past three decades is being stonewalled by a zero-bound goal line stand,” Mr. Gross wrote. “Investment defense is coming of age.”
Pimco's government and Treasury debt category includes fund holdings of Treasury notes, bonds, futures and inflation-protected securities.
The firm, a unit of insurer Allianz SE, managed $1.36 trillion in assets as of Dec. 31.
