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Pimco's 'ill-timed' wager on EMs

Many hedge funds betting against its emerging market investments after its securities tumble with falling oil prices, strong dollar.

Published Fri, Dec 19, 2014 · 09:50 PM
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EARLIER this autumn, William Gross, in one of his last moves as portfolio manager of Pimco's US$200 billion flagship Total Return fund, made a quick change to his investor prospectus. He was bullish on the bonds of emerging markets in Mexico and Brazil but, having bought so many of them, was fast approaching Pimco's own 15 per cent limit for the fund's exposure to emerging markets.

The new wording in the prospectus read: "This limitation does not apply to investment-grade sovereign debt denominated in the local currency with less than one year remaining to maturity."

By the time the added wording came into effect in October, Mr Gross had left the money management firm he co-founded. But its impact on the Pimco Total Return fund will be long-lasting. The bond fund, the world's largest (US$162 billion at last count), could now buy short-term Mexican, Brazili…

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