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PIMCO to offer Stock Funds

Pacific Investment Management Co (PIMCO), manager of the world’s biggest bond fund, a unit of Munich- based insurer Allianz SE, managed $1 trillion in assets announced in December 2009 that it would offer stock funds.

Bill Gross, the best Bond fund manager, who co-founded Newport Beach, California-based PIMCO, shares the title of chief investment officer with Mohamed El-Erian. In a recent (March 26, 2010) interview with Tom Keene on Bloomberg Radio, he said “bonds have seen their best days.”.

According to Morningstar. Bond mutual funds in the U.S. attracted $409.4 billion over the past 14 months, Stock funds gathered $11.7 billion during the same period. This year alone, individual investors have poured $89 billion into bond funds. The surge into bonds made Gross’s Pimco Total Return Fund the largest mutual fund in history with $214.3 billion as of Feb. 26 2010.

The prospect of a strengthening U.S. economy and rising interest rates makes an “argument to not own as many” bonds, Gross said in the interview. Gross is advising investors to buy the debt of countries such as Germany and Canada that have low deficits and higher- yielding corporate securities.

Treasuries have rallied for almost three decades, pushing the yield on the 10-year Treasury note from a high of 15.8 percent in September 1981 to 3.89 percent as of yesterday. The yield reached a record low of 2.03 percent in December 2008 during the height of the credit crunch.

Excess borrowing in nations including the U.S., U.K. and Japan will eventually lead to inflation as governments sell record amounts of debt to finance surging deficits, Gross said.

Pimco in December said it hired Neel Kashkari, the former head of the U.S. Treasury’s bank-rescue program, to oversee new investment initiatives. It also hired Franklin Resources Inc.’s Anne Gudefin and Charles Lahr as global equities portfolio managers to help direct Pimco’s expansion into stock funds.

Reference: Bloomberg, 2010-03-26, "Bill Gross Warning May Catch Bond Investors Off-Guard"