Bill Gross sees lower bond returns, favors commodities and Aristocrat stocks

PIMCO co-founder Bill Gross, the manager of the World's biggest bond fund, lowered his expectations.

Tuesday, in his investment letter, Mr. Gross says total return as a supercharged bond strategy is fading.

Gross, who runs the $252 billion PIMCO Total Return Fund (NASDAQ:PMBIX) and helped bring bond investing to the masses, says investors should get used to smaller returns as the financial services industry continues to de-lever, or reduce its reliance on derivatives and borrowed money to generate higher returns.

In his April letter entitled The Great Escape: Delivering in a De-levering World, Mr. Gross says that investors should not desert bonds if annual returns hover around 4% instead of 10%. He says that bonds should remain a critical (Key) components of an investor's portfolio.

Levered hedge strategies based on spread and yield compression are fading, says Mr. Gross. As we de-lever, it will be hard to deliver what you have been used to.

The Total Return Fund is up under 3% this year.

Mr. Gross says he favors high-quality, short duration and inflation-protected bonds. He also likes dividend-paying stocks with a preference for developing over developed markets.

He also favors commodities whose prices rise with inflation and are in limited supply.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster's Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.