The PIMCO Total Return Fund (NASDAQ: PTTAX), the world’s largest bond fund, will widen its investment strategy to allow portfolio manager Bill Gross the flexibility of holding up to 10 percent of the portfolio’s assets in “equity-linked” securities, such as preferred shares or convertible stock, according to an SEC filing.

PIMCO expects to make the change after the first quarter of 2011.

However, PIMCO indicated that the $250-billion portfolio will not invest in common shares.

The decision by PIMCO likely reflects the weakening outlook for the U.S. bond market, particularly Treasuries (the yield on the 10-Year Note has surged from about 2.48 percent in early November to 3.52 percent currently).

Indeed, according to Morningstar, the Total Return Fund incurred redemptions of $1.9-billion in November, the most in two years. The fund declined 1.5 percent in value for that month, its worst performance since September 2008.

Bonds and bond funds have seen huge cash inflows this year, as investors have been wary of higher-risk securities like stocks, given the multitude of global economic worries. However, now that trend may be over.

Louis Harvey, president of Dalbar Inc., a Boston-based mutual fund consultant, says the move by PIMCO makes perfect sense from an investment strategic perspective, but he’s not sure if the fund will be able to attract more assets into the portfolio.

“PIMCO has such a large footprint in bond funds, that their stock funds have been less than successful,” he said. “I think they are anticipating weakness in the bond market, but instead of having investors move out of bond funds into stock funds outright, they’re seeking to expand the bond product to include equity-like securities.”

Harvey also noted that since bond markets are far more predictable than equity markets, this new strategy will probably dramatically enhance the fund’s performance next year.

“But it’s unclear to me if they will be able to add more fund holders or retain their existing holders,” he added.