Top bond-fund manager Bill Gross warned of a slow U.S. recovery in coming years and said investors would do best aiming for modest returns.
The unfolding economic recovery now amounts to green shoots, but not much more, Gross, co-chief investment officer of bond giant Pacific Investment Management Co, said in an interview at an investment conference in Chicago.
Gross forecasts the U.S. economy will grow a paltry 1 percent to 2 percent annually over the next few years, with stubbornly high unemployment.
In this environment, Gross said, investors should think stable income. Gross said he favors high-quality corporate bonds that yield 6 to 8 percent. That's where you should go ... reaching for returns won't be rewarded like it was.
Gross said some stocks would fit the same description. He cited Coca-Cola Co
Growth will be subdued, he said in luncheon remarks on Thursday at a conference hosted by Chicago research firm Morningstar Inc. He also forecast unemployment between 7 to 8 percent for years to come. We won't be able to put all these people back to work.
The U.S. recession has already cost over 5 million jobs since it began in December 2007 and the unemployment rate hit 8.9 percent in April, the highest since September 1983.
Gross manages the Pimco Total Return Fund, which has $150 billion in assets and was the top-selling fund in April, according to recent data from Financial Research Corp. The fund took in $3.9 billion in assets in that month.
The fund is up 2.8 percent through May 27, according to Morningstar data, 0.8 percent better than its peers.
Gross attributed a slide in the U.S. government bond market on Wednesday to fears there would not be enough buyers for the $3 trillion in recent U.S. borrowing.
There's a gap because the market is worried who's buying these securities, he said.
U.S. Treasuries recovered on Thursday as dealers wondered whether the selling was overdone given that much of the downward move came on the back of mortgage-related trades.
Asked about inflation, Gross said he doesn't foresee it as a factor for the next few years. There's so much excess capacity such as idle factories and laid-off workers, which will hold back price increases.
According to its most recent update on its website, mortgage securities make up the biggest share of the holdings of his Pimco Total Return Fund: 64 percent. Gross reduced his holdings of U.S. government securities slightly in April to 26 percent.
Pimco, the world's biggest bond fund manager, is a unit of Allianz SE
(Reporting by Ross Kerber; Editing by Jason Szep, Andre Grenon, Gary Hill)