Bill Gross

The world’s biggest fixed income fund, the PIMCO  Total Return A (MUTF:PTTAX) Total Return Fund, saw substantial gains in May as it increased Treasury holdings prior to a major run up in prices. The fund increased its holdings of U.S. government debt to 35% in May, up from 31% in the prior month, which represents the first time the fund has increased its Treasury holdings this year.

While Bill Gross’s fund has outperformed his relative benchmarks so far this year, earning 5.37 percent, this has come has he has traded essentially in the opposite direction to his public statements.

On March 27th in an interview with CNBC, Gross stated that he believes that five-year Russian notes offered more value than U.S. treasuries of the same maturity. That apparently didn’t stop him from investing heavily in U.S. notes, while watching the Russia notes of the same maturity collapse in value. The Russian 5-year note declined approximately 3 percent since his statement, while the U.S. 5-year Treasury rallied about 1.5 percent. While Gross ultimately took the right side of this trade, it certainly isn’t what he was telling the market as a whole in March.

While Gross cut his Treasury holdings in April following that statement, he quickly returned to the market in May, purchasing aggressively. He contradicted this activity again with a May 31st statement on Bloomberg Television’s “Street Smart” program, where he called for ten year yields to increase to 1.75 percent by the end of 2012. The ten year Treasury yield on that date was 1.58 percent and has subsequently risen to 1.63 percent. Again, this is during a time when he was accumulating Treasury holdings.

While Gross does seem to have the ability to outperform the market on a regular basis, investors would be wise to temper any advice he publically discloses as the trading in his portfolio often runs contrary to those views shortly thereafter. While a statement may be true one day, it doesn’t take much for PIMCO to change conviction and execute a strategy radically different than what was discussed just a week prior.