Gross Says Brazil No Longer Pimco Emerging-Market Favorite

Jan 15, 2014 12:07 pm ET

(Updates with details on Gross’s previous bet on Brazil in third paragraph.)

Jan. 15 (Bloomberg) -- Pacific Investment Management Co.’s Bill Gross, hurt by a wrong-way bet on Brazil last year, said the nation is no longer a preferred emerging market for the world’s largest fixed-income manager.

Gross, speaking at the 2014 ETF Virtual Summit, said the firm still finds Mexican debt attractive. Gross is co-founder and chief investment officer of Newport Beach, California-based Pimco.

Pimco’s biggest funds were bullish on Brazil in 2013, a wager that hurt performance. Gross wrote in a Twitter message a year ago that the Brazilian currency, the real, was a better use of cash than high-yield bonds. The real fell 13 percent against the dollar last year, while U.S. high-yield bonds climbed 7.4 percent, based on the Bank of America Merrill Lynch U.S. High- Yield Index.

Brazilian bonds and currency represented the largest holdings in the $11.5 billion Pimco Emerging Local Bond Fund as of Sept. 30, according to Pimco’s website. Other Pimco funds that blamed the Brazil wager for detracting from performance were Gross’s Pimco Total Return, Pimco Low Duration, Pimco Unconstrained and Pimco Commodity RealReturn Strategy.

Local-currency Brazilian notes lost 11 percent in dollars in 2013 compared with the average 6.9 percent drop in emerging markets tracked by JPMorgan Chase & Co. The Brazilian debt was hurt by a combination of slow growth and accelerating inflation. The real has tumbled 7.4 percent in the past three months, the second-worst performance among 16 major currencies tracked by Bloomberg after South Africa’s rand, on concern fiscal deterioration will lead to a lower credit rating.

--With assistance from Charles Stein in Boston. Editors: Sree Vidya Bhaktavatsalam, Christian Baumgaertel