In a major surprise, Gross' first pick was the physical gold ETF (GLD). Gross is well aware of the money printing globally. He fears that at some point institutional investors in China and Japan will avoid bonds and invest in "real" things such as gold or oil. Gross owns GLD as an inflation hedge primarily.
His next recommendation was the Pimco Total Return bond fund (BOND).
"Future returns will be only 3% to 4% in my first recommendation, but that is better than cash, and will help you escape a potential bear market. My first pick is BOND, our new ETF. It trounced the competition by 800 basis points in its first 10 months. I manage it on a daily basis. BOND is a $4 billion ETF launched last February. It has been a huge success story, matched only by the launch of the QQQ and the SPY. It is a way for investors to earn a 3% to 4% return at a low fee."
It should be noted that this fund uses derivatives which may increase risk. Basically, Gross and his team actively manage the bond fund by shuffling money between municipal bonds, non-agency mortgages and Treasury bonds.
Gross also recommended the BlackRock Build America Bond Trust (BBN).
"It has a market capitalization of about $1 billion, and was launched a few years ago when Build America bonds were issued. The beauty and the risk is that it is invested in long-term bonds. I just talked about how they will be the first to get clipped. Also, the fund uses leverage, like most closed-ends. It borrows at 25 basis points and invests at 4% or 5%. It yields 7%, but these aren't junk bonds. This is a levered, high-quality, taxable municipal-bond fund, with bonds issued by California, New York State, the Port Authority of New York and New Jersey, and so on. They are A-rated and AA-rated. For an investor who needs a 7% yield and can take some risk in maturity and leverage, this is a decent vehicle."
Gross' last pick was the Pimco Corporate and Income Opportunity Fund (PTY) which he expects will yield 8% this year.