-- DJ Pimco's Gross: '03 Bond Returns Won't Be As High As '02 --
By Michelle Rama
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The "big lesson" investors learned in 2002 is that bonds
can be just as volatile as stocks, said Bill Gross, managing director at Pacific
Investment Management Co.
"It's best to be careful when you're selecting credits, corporates, emerging
markets - it's not necessarily the safe haven that investors always assume,"
Gross told CNBC Thursday.
The year ahead should bring a better investment climate from an economic
standpoint, Gross predicts. He expects the economy to grow about 2% to 3%, with
a slight uptick in inflation. In bonds, he doesn't see the 9% or 10% returns
that Pimco's Total Return Fund - which Gross manages - gleaned this year, but
said "certainly bonds should always have a place in an investor's portfolio..."
"Ultimately," he said of equities, "a new bull market in stocks depends on
yield, and I think stocks need to yield 3.5% or so, which is Dow 5000. That may
be a few years out, but in the meantime the market will go whichever way"
investors want it to go.
The 2% to 3% economic growth backdrop, he noted, will be a negative for
high-quality bonds such as Treasurys and a positive for lower-quality corporate
and emerging market bonds.
He suggests bond investors move out a little further on the limb and take
slightly greater risks, but "not a lot." Taking on a bit more risk, he noted,
"is what (Federal Reserve Chairman) Alan Greenspan wants us to do."
"We're not suggesting we're going to be in high yield bonds to a significant
extent, nor even in corporate bonds," Gross said, "but when Treasurys are
yielding three and 4% and in some cases 2%, when talking about short-term
Treasurys, you need higher yields to offset the potential for negative prices,
at least in the Treasury arena, so we're moving out on the risk spectrum and
looking at corporate bonds, certainly emerging market bonds. Mexico, for
instance, yields 8%."
He tells individual investors it's a relatively safe environment in which to
diversify by moving out of money market and Treasury-oriented mutual funds and
into corporate bond funds, "and a twinge of emerging market funds."
"I'm not suggesting taking a lot of risk," he said, "but gradually moving
out of lower yielding instruments," he said.
-By Michelle Rama, Dow Jones Newswires; 201-938-4046;
michelle.rama@dowjones.com
(END) Dow Jones Newswires
12-19-02 1347ET- - 01 47 PM EST 12-19-02
19-Dec-2002 18:47:00 GMT
Source DJ - Dow Jones |
