By Lester Pimentel, Bloomberg
New York: Bill Gross, manager of the world’s biggest bond fund, said developing nations’ local bond and currency markets may provide the best returns this year as their strengthening economies lure foreign investment.
Gross, who manages Pacific Investment Management Co.’s $100 billion (Rs4,05,800 crore) Total Return Fund, also recommended investments in commodities, whose rally has spurred the expansions in emerging- market countries such as Brazil and Russia. He said Pimco will invest in more foreign currencies as slowing US growth continues to push down the dollar.
“The best opportunities lie with still unexploited local currency fixed income markets and relatively liquid emerging-market currencies, which in effect allow bondholders to benefit from growth in these countries,” Gross, chief investment officer of Newport Beach, California-based Pimco, wrote in a commentary on the firm’s Web site.
Brazil’s real-denominated bonds have returned 26.3% this year, the most among emerging markets, according to data compiled by JPMorgan Chase & Co.
The real yesterday broke through the 2-per-dollar level for the first time in six years amid signs that economic growth is picking up. It has rallied more than 9% this year and 50% over the past four years as the commodity rally pushes the country’s exports to record highs.
Analysts expect Brazil’s economy to expand by 4.1% this year, up from 3.7% in 2006, according to the median forecast from 100 financial institutions surveyed by the central bank last week.
“What we want to be able to do is to take advantage of the high growth of emerging-market economies” such as Brazil, Russia, India and China, Gross said. “It will do you, as clients, little good if we outperform the unexciting asset class that G-3 bond markets represent and yet provide returns of only 3% in doing so.”
Gross raised his forecast range for 10-year US Treasury yields on concern inflation may quicken in countries with weakening currencies such as the US Ten-year yields will probably range from 4% to 6.5% until 2011, he said. Gross had previously said the yield would fluctuate between 4% and 5.5%.
The benchmark 10-year note’s yield was unchanged at 4.71% today, according to bond broker Cantor Fitzgerald LP.
Gross’s Total Return Fund returned 4 % last year, beating more than 54% of its peers, according to data compiled by Morningstar. The Lehman Brothers Aggregate Index gained by 4.3% during the period.
The fund returned 5.2% on average in each of the past five years, beating more than 70% of its peers.
Pimco, which oversees about $668 billion, is a unit of Munich-based insurer Allianz AG.