Pimco Total Return still bleeding

“Bond King” Bill Gross says fund has turned a corner, but investors keep moving money out

Jul 2, 2014 @ 1:10 pm

By Trevor Hunnicutt

Despite a vigorous defense of his performance, Bill Gross' flagship bond fund suffered its 14th consecutive month of outflows in June, according to an estimate Wednesday by Morningstar Inc.

The research firm said outflows of $4.5 billion struck the world's largest bond fund, Pimco Total Return (PTTAX) in June, leaving it with a total of $225 billion in assets, even as Mr. Gross in recent weeks said his company has seen “one of the most significant performance turnarounds in Pimco's history.”

Morningstar estimates Pacific Investment Management Co. has lost about $60 billion in that bond fund alone as a result of a dip in performance and questions that arose about the firm's leadership in the aftermath of January's resignation of Pimco's former chief executive and co-chief investment officer, Mohamed A. El-Erian.

Year to date, the fund is still trailing most of its competitors, but over the past several months performance has improved, with three-month returns of 2.28% as of Tuesday beating most rivals. In June, the fund's 0.37% return ranked ahead of 88% of its competitors and a benchmark, the Barclays Capital U.S. Aggregate Bond Index, Morningstar said.

In an appearance at a conference for advisers last month, and in subsequent appearances with reporters and investors, Mr. Gross has suggested that outflows are unjustified.

“The Total Return Fund, long lambasted as underperforming, is outperforming its index by a decent margin, before fees,” Mr. Gross said June 19. “We're $50 billion poorer over the last 13 months; it makes you wonder why that would be.”

Through spokesman Mark Porterfield, Pimco said it doesn't comment on flows, but it released a statement Wednesday saying the fund has outperformed its benchmark and “a majority” of its peers over the last one-, three-, five-, 10- and 15-year periods. “Patient investors are rewarded over the long-term by sticking with core bond allocations in a diversified portfolio,” the statement said.

A Morningstar chart reflecting performance of the institutional share class (PTTRX) shows the fund in the 51st percentile over one year, 43rd over the three-year period, 40th over five years, and above 6th over the 10- and 15-year periods.

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