2nd UPDATE: PIMCO's Gross: Making A Move Into Equities

15th Jun 2010 00:23

By Enda Curran Of DOW JONES NEWSWIRES SYDNEY (Dow Jones)--Pacific Investment Management Co., one of the world's biggest bond managers, is beginning to invest in equities, Bill Gross, founder and co-chief investment officer told CNBC television Wednesday. Famous for its prowess in fixed income, PIMCO's move into equities herald's a new route for the company's investment strategy and underlines a divergence in the returns available between bonds and stocks. Gross said the decision to buy stocks has been in the making for some time, well before the eruption of the global financial crisis. "We are making a move into equities...we are recognising the global market place is not just bond related," Gross said in the interview. "To the extent that a client wants not only an appetiser but an entree and a dessert, equities certainly fit into that multiple entree list, and we certainly want to fill out the menu as well," Gross said. He said the 'ring of fire' analogy PIMCO coined to describe those European states most at risk in the sovereign debt crisis still holds true, and the ongoing woes in Europe will act as a drag on corporate revenues and profits there. "Revenue and top line profit growth at this point will be soft," he said. In particular, Gross said Greece, Spain and Portugal still face significant problems but corporate stocks look attractive. "Corporate equities, however, in terms of valuation are selling at very low (price-earnings) ratios and in some cases might be perceived to be almost as safe as or almost as secure as the sovereigns themselves because of their international exposure and their private nature." Asked whether he would buy bonds issued by oil giant BP Plc (BP.LN), currently ensnared in the fallout from the Gulf of Mexico oil spill, Gross said the company does offer value, but PIMCO does not own a lot of the company's debt as the current risk is "too much to assess". "The potential for disaster is ever lurking but this doesn't mean that it's probable," he said. On ratings agencies, Gross said there is a need for regulation and described their existing model as broken, meaning investors pay little heed to credit ratings. "The ratings simply aren't respected," Gross said, "There has to be some regulation." -By Enda Curran, Dow Jones Newswires; 61-2-8272-4687; [email protected] (END) Dow Jones Newswires June 15, 2010 19:23 ET (23:23 GMT)