The Colony Group expects Pimco to recover from the loss of “bond king” Bill Gross, but the advisory firm still moved all client money out of the investment company's flagship Total Return bond fund last week.
The Boston-based advisers sold the last $40 million they had invested in the Pacific Investment Management Co. fund on Friday, the day Janus
Capital Group announced Mr. Gross would be joining it to lead a new unconstrained bond fund.
“Our clients expect us to be decisive on their behalf, and we determined that immediate action was in their best interests, particularly given the possibility of even more redemptions when others begin to react to the news,” said Brian Katz, The Colony Group's chief investment officer and principal.
In fact, the “uncertainty regarding outflows” and management changes at Pimco led Morningstar Inc. to downgrade the Pimco bond fund to bronze from gold Monday.
“Snap estimates of expected outflows have been all over the map, but it seems likely that outflows could total in the tens of billions of dollars,” Morningstar said in its report.
The fund, though, has about $221.6 billion in assets, so Pimco can “weather a pretty large storm,” Morningstar added.
In a conference call with analysts Monday, Pimco executives said it's too early to estimate redemptions.
Not all advisers are jumping ship. About 32% of respondents to an
InvestmentNews poll Monday said they are wary but not moving funds out, and 29% said Pimco is still a good bond manager.
About 33% said that, similar to The Colony Group, they've had enough and are moving money out of Pimco to other investment managers.
A separate adviser survey by kasina Advisor Insights on Tuesday found that 53% of advisers are considering moving assets from Pimco, and 16% are considering moving assets to Janus.
Jeff Strange, head of kasina Advisor Insights, said many advisers were confident in Pimco’s deep talent pool, but they wanted more information about the firm’s leaders and clarity on the direction of the fund provider.
Some financial advisers had already bailed on Pimco’s Total Return fund before last week's news. In fact, the 27-year-old bond fund has experienced net outflows for the past 16 months.
Arthur Stein, founder of Arthur Stein Financial, abandoned Pimco a couple years ago and moved his clients' assets to competitors' total return and other fixed-income funds, namely those of Dodge & Cox, Metropolitan West Asset Management,
Franklin Templeton Investments and Prudential Investments.
He's expecting a volatile time in the bond market, but he's keeping fixed-income assets in these companies.
“They don't have the trouble or drama issues that Pimco Total Return has had, and I think there can be some advantages to not having a superstar investor on the management team,” Mr. Stein said. “I wouldn't follow Mr. Gross into Janus or anywhere else; it seems like he has trouble getting along with people.”
The only step Mr. Stein is taking right now is to pen a note to clients to remind them that none of their money is in Pimco funds.
Jeffrey Roof, president of Roof Advisory Group, still has about $22 million invested in the Pimco Income Fund, an investment that didn't involve Mr. Gross. The firm is considering getting out of this investment, but has been thinking about it since January when Pimco's chief executive, Mohamed El-Erian, said he would be leaving.
“We do suspect that Pimco's internal changes will indeed compel certain large institutional holders to reduce or eliminate their exposure to some of the Pimco funds directly tied to Bill Gross,” Mr. Roof said. “We are currently assessing opportunities that may result by being ahead of that curve, and are evaluating the addition or reallocation of some of our existing portfolio fixed-income exposure.”
Three total return bond funds the firm is considering investing in are from DoubleLine Capital, which already has a “notable position” in many client portfolios, Metropolitan West and TCW.
Roof Advisory doesn't have a position in any of the three funds Mr. Gross managed. “We haven't for years,” Mr. Roof said.
The Colony Group is reviewing whether to allocate money cashed out of Pimco to the Dodge & Cox Income or DoubleLine Core Bond fund it already includes in client portfolios, Mr. Katz said. A new manager search also has turned up a third, unnamed fund, the firm is considering, he said.
Lauren Prince, adviser and principal at Prince Financial Advisory, said she doesn't use Pimco funds because their expense ratios are too high and she wasn't a fan of Mr. Gross. She said she won't be making any changes regarding the fixed-income sector right now. But she'll be watching.
“It'll be interesting to see how much capital Mr. Gross can attract to his new fund and the other strategies,” she said. “It does remain to be seen how Mr. Gross will fit in with Janus' management.”
