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Pimco’s $240 billion Total Return Fund is, by most measures, the largest fund in the world. A handful of sovereign wealth funds are larger, but none of them trade nearly as actively or aggressively as Bill Gross. Check out these two datapoints: in August 2010, the fund was 51% invested in US Treasuries. By January 2011, that number had declined to 12%. Which means that the Total Return Fund on its own liquidated over $90 billion in Treasury securities over the space of five months.

What happened, narrowly, is that Bill Gross changed his base view from worrying about deflation to worrying about inflation. But more broadly, he showed that he’s more than capable of repositioning his supertanker of a fund as easily and aggressively as if it were a hundredth of its size. He can do that because the Treasury market is the most liquid market in the world, and because he employs some spectacularly good traders.

Gross also showed, of course, that anybody following an “I’ll do what Bill’s doing” strategy is doomed to underperform. The holdings of the Total Return Fund are emphatically not what you should hold if you’re looking to work out your asset-allocation strategy over the medium or long term: instead, they’re held on an I-can-sell-these-at-any-time-I-want basis by arguably the greatest bond trader the world has ever seen. Which is why investing in the Total Return Fund (minimum investment: $1 million) makes a lot of sense. Copying it, by contrast, or trying to position yourself in light of Gross’s public pronouncements, makes no sense at all.

Source: PIMCO Datapoints of the Day