When it comes to bonds, Pimco is the automatic choice for advisers

Across the financial planning business, there is little dispute that a “Pimco mystique” exists, even if no one can define it clearly.

With more than $1 trillion under management, mostly in fixed-income portfolios, Pacific Investment Management Co. LLC casts a giant shadow across the investment landscape. But size and performance aren’t necessarily the main reasons that Pimco, which was ranked by respondents to the InvestmentNews Advisers’ Choice Awards survey as No. 1 in the Most Respected and Long-Term Achievement categories, has built such a strong reputation and loyal following.

Pimco executives, including managing director and co-chief investment officer Bill Gross, have shown that creating successful bond portfolios involves more than just calculating duration and key interest rates, said Lou Harvey, president of research and consulting firm Dalbar Inc.

“They have turned bond investing into an art form,” he said.

Mr. Gross, who joined Pacific Mutual Life Insurance Co. as a junior credit analyst nearly four decades ago, was instrumental in creating Pimco nearly 30 years ago when the asset management operation was spun out from the insurance company.

In addition to his CIO title, which he shares with chief executive Mohamed El-Erian, Mr. Gross manages the $225 billion Pimco Total Return Fund (TTAX), the world’s largest mutual fund.

In terms of performance, Pimco funds have been in the top quartile of their respective categories during the past five, three and one-year periods.

“I don’t know what they drink in their tea in the morning, but whatever it is, it gives them insights that no one else can hold a candle to,” said Donald Askey, president of Provident Advisory Group, which has more than 10% of its $56 million under advisement allocated to Pimco funds.

“They have never stopped being creative in putting together funds that help retail investors participate in the bond markets,” he said. “I don’t know what the magic is, but they can read tea leaves better than anyone else.”

According to Mr. Harvey, Pimco’s reputation of having some of the smartest executives in the business has helped make the company an automatic choice for financial advisers.

“Unless there’s a good reason to use something else, they’re going to use Pimco,” he said.

That reputation for big-brain managers is bolstered through the regular publication of opinion pieces and outlooks on the market by Mr. El-Erian and Mr. Gross.

“They are sharp and opportunistic people with very good macro-forecasting resources,” said Lewis Altfest, president of L.J. Altfest & Co., which has $600 million under advisement.

Mr. Altfest, who has one-third of his clients’ fixed-income allocations invested in Pimco products, describes the high regard that Pimco gets from the advisory community as “Pimco-speak,” which he describes as almost like “Fed-speak.”

One instance in which Pimco went against popular thinking was in recognizing that spending from the federal government’s stimulus programs would be bad for Treasury bonds but good for mortgage-backed securities sold through government-guaranteed Fannie Mae and Freddie Mac.

“At Pimco, they have their own opinions and sound research to put logic behind those opinions,” said Robert Siegmann, chief operating officer at Financial Management Group Inc.

The firm has $40 million of its $175 million under advisement invested in Pimco funds.

“I like the fact that they do their own research and they do their own bond ratings in-house,” Mr. Siegmann said.

“You see a lot of fund companies that think they have to fill out every asset class, but Pimco knows what they do well, and that’s fixed income.”

E-mail Jeff Benjamin at [email protected].