Updated Saturday, December 27, 2014 as of 10:08 PM ET

Pimco Overhauls Unconstrained Bond Fund as Gross Takes Control

(Bloomberg) -- PimcoUnconstrained Bond Fund, one of the firm’s most important offerings as clients turn away from traditional fixed-income products, overhauled its investments in the fourth quarter, when Bill Gross replaced Chris Dialynas as manager of the $25.6 billion fund.

The fund jettisoned 30-year Treasuries and most of its agency mortgage bonds, increased a wager on corporate debt through credit-default swaps, and ended bets that the U.S. dollar would appreciate against the Chinese yuan, according to data on Pacific Investment Management Co.’s website. The effective duration, a measure of sensitivity to interest rate changes, more than doubled in December, when Gross assumed control of the unconstrained fund.

“We became more credit friendly in anticipation of an improving economy and a positive stock market,” Gross said in a telephone interview, adding that duration was extended in light of “an undervalued Treasury market which was too high yielding. Mr. Dialynas might have done the same thing.”

Gross has taken charge of Pimco Unconstrained as investors are flocking to flexible go-anywhere strategies while fleeing core fixed income in anticipation of rising interest rates. Pimco Unconstrained attracted $8.7 billion in 2013, despite lackluster returns, as clients pulled a record $41 billion from Gross’s more famous and far larger Total Return Fund, according to data from Morningstar.

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