Tags: Big | Investors | Portfolios | Deflation

Big Investors Buying More Bonds, Brace for Deflation

Monday, 09 Aug 2010 09:25 AM

Pimco co-CEO Bill Gross and GMO chairman Jeremy Grantham, and hedge fund managers David Tepper and Alan Fournier are among the best-known investors who reportedly are adjusting their portfolios to withstand a bout of deflation, which could severely hamper global economies and world stock markets.

"Deflation isn't just a topic of intellectual curiosity, it's happening," Gross told The Wall Street Journal, pointing to an annualized 0.1 percent decline during the past two years in the U.S. consumer-price index.

"It's an uncertain world that's tipping toward deflation."

Though Gross and others don't think that extended deflation is a sure thing — and expect the Federal Reserve would intervene by buying bonds or introducing spending programs — they are nonetheless taking larger positions on interest-bearing investments such as bonds or dividend-paying stocks.

Gross, for example, has been aggressively buying U.S. government debt in recent weeks: Treasuries now make up about 51 percent of the portfolio for Pimco’s Total Return fund, an 18 percent increase since the end of March.

This allocation to government securities is as high as any time in the past six years, according to Morningstar Inc. The fund has risen 7 percent this year.

Tepper, who runs the $15 billion hedge fund Appaloosa Management LP, has about 70 percent of his portfolio in bonds rated "BB" and "BBB" — the lowest end of the investment-grade spectrum and the upper tier of "junk" — from banks and others, an increase of 7 percent earlier in the year; his fund has gained about 12 percent this year.

"I'm concerned that slower growth may lead to a much tougher environment for pricing," Tepper says. "That can mean deflation in some industries, even if we get inflation in the overall economy."

The Wall Street Journal also reports that St. Louis Federal reserve chairman James Bullard said the U.S. is at risk of falling into a Japan-like deflationary trap, and suggested that the Fed resume its program of buying U.S. Treasuries.

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Pimco co-CEO Bill Gross andGMO chairman Jeremy Grantham, and hedge fund managers David Tepper and Alan Fournier are among the best-known investors who reportedly are adjusting their portfolios to withstand a bout of deflation, which could severely hamper global economies...
Big,Investors,Portfolios,Deflation
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2010-25-09
Monday, 09 Aug 2010 09:25 AM
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