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 The latest statistics for the Pimco Total Return Fund, released
Tuesday by Morningstar, increase the risk that more money could flee
the fund managed by Gross, whose shop has been rattled by a
management shakeup and disappointing performance. So far this year,
it has generated a total return of 1.29 percent, lagging its
performance benchmark by 0.55 percentage point and trailing the
returns of 85 percent of its peers.
In all, investors have pulled $52.1 billion out of the fund since
last May, according to Morningstar data. The latest outflows from
the fund reduced the portfolio's assets to $232 billion.
Gross, co-founder of Newport Beach, California-based Pimco and
dubbed as the market's "Bond King," has been dealing with a public
falling-out with former heir-apparent Mohamed El-Erian, who shared
the co-chief investment officer title.
Several U.S. institutional investors, including retirement systems,
said they are closely monitoring the developments at Pimco and have
formally put Pimco on "watch lists," a signal that they will keep a
much closer eye on its performance than usual.
"In short, underperformance the past 12 months coupled with the
leadership changes have led to investor concerns," said Todd
Rosenbluth, director of mutual fund research at S&P Capital IQ.
The North Dakota State Investment Board, which has about $400
million invested with Pimco, put the fund on its watch list on
February 28. The California Public Employees' Retirement System, the
largest U.S. pension fund, said it had not placed Pimco on a formal
watch list, but it was also paying close attention to developments.
FUND BEGAN STRUGGLING IN FEB
Morningstar senior analyst Eric Jacobson said what hurt Pimco Total
Return's performance most in March was its significant overweight
position in shorter debt and its underweight position in long-dated
bonds.
The Barclays U.S. Treasury 20+ year Index posted returns of 0.79
percent in March alone, while the Barclays U.S. Treasury 5-7 year
Index returned -0.82 percent for the same period.
"Having such short-term exposure has hurt the fund's performance
relative to its peers," Rosenbluth said. The Total Return Fund had
an effective duration of 4.71 years at the end of February,
according to data on the Pimco website. Duration is a measure of a
bond's price sensitivity to yield changes.
The Pimco Total Return Exchange-Traded Fund, an actively managed
exchange-traded fund designed to mimic the strategy of the flagship
mutual fund, was up 0.084 percent in March but posted outflows of
$53.4 million.
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That marked the 11th straight month of withdrawals from the ETF,
which has $3.4 billion in assets, according to Morningstar data.
Rosenbluth said the ETF's performance in March benefited from having
less exposure to mortgage-backed securities and more exposure to
investment-grade corporate bonds. The Barclays U.S. MBS Index fell
0.32 percent last month, while the Barclays U.S. Corporate
Investment Grade Bond Index rose 0.07 percent.
Pimco's flagship mutual fund had a 29 percent exposure to mortgages
at the end of February, while the ETF had a lower exposure to
mortgages at 25 percent and a higher exposure to U.S. credit at 11
percent, according to Pimco's website.
Jacobson said the Pimco Total Return portfolio began struggling in
February as the fund was "very underweight U.S. investment-grade
corporate bonds. That would have been a detriment given that the
overall investment-grade corporate index returned 104 basis points
for February, and returns were better the farther down you went in
quality."
Pimco spokesman Mark Porterfield said: "It's important to compare a
fund's performance with its benchmark and not just with other mutual
funds, which could hold riskier and higher-yielding assets. Total
Return has outperformed its index for the past six months, two, five
and 10 years."
The Pimco Total Return Fund's five-year and 10-year annualized
returns of 6.87 percent and 5.89 percent have outperformed the
benchmark Barclays U.S. Aggregate Bond Index by 2.07 percentage
points and 1.42 percentage points, respectively, according to
Morningstar data, as of March 31.
Pimco, a unit of European financial services company Allianz SE, had
$1.91 trillion in assets under management as of December 31.
(Reporting by Jennifer Ablan and Sam Forgione;
editing by Chizu
Nomiyama, Jeffrey Benkoe, Paul Simao and Lisa Shumaker)
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