Bloomberg News

Pimco’s Baker Says Treasuries Allocation Good ‘Tail Hedge’

February 26, 2012

(Adds Pimco Asia CEO comments in third paragraph.)

Feb. 21 (Bloomberg) -- U.S. Treasuries are a good way to protect investors’ portfolios from extreme market volatility, according to Pacific Investment Management Co.

U.S. government securities maturing in 10 years or longer handed investors a 30 percent return in the past year. The gain is second only to Ireland among 144 government bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, after accounting for currency changes.

“Treasuries are a safe-haven asset in what we think could be a volatile world,” Brian Baker, Hong Kong-based chief executive officer of Pimco Asia Ltd. told reporters after speaking as a panelist at the Euromoney Asia Forex Forum in Singapore today. “Some allocation in Treasuries is a good tail hedge in your portfolio.”

Pimco’s Bill Gross boosted U.S. government and Treasury debt last month to 38 percent of assets in the company’s $250.5 billion Total Return Fund, the world’s biggest bond fund which he runs. That’s the highest level since July 2010. The position climbed from 30 percent in December, according to a report on the company’s website on Feb. 9.

Pimco is “avoiding peripheral Europe,” Baker said, recommending investors “stick strictly” to the region’s core economies. He also said emerging-market assets may still sell off amid a decline in risk appetite.

“There’s a lot of volatility in the markets,” Baker said, speaking at the Euromoney forum. “If you can take that volatility and have a longer investment horizon, emerging markets are the place to allocate more of your assets. But, in a shorter time horizon, if you can’t take that volatility, they are still a risk asset, and in a risk-off scenario, they will sell off.”

Newport Beach, California-based Pimco has $1.36 trillion in assets under management as of Dec. 31, according to its website.

--With assistance from Wes Goodman in Singapore. Editors: Jonathan Annells, Rocky Swift

To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net


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