The three men thrust into the role of managing the world's largest bond fund said they can navigate any investor withdrawals following the exit of Bill Gross, who managed Pimco Total Return Fund (PTTAX) from 1987 through last Thursday.
In a transcribed interview posted on Pimco's website Sunday, one of the new Total Return managers said Pimco's experience managing through market stress in 2008 and 2009 showed it was ready to manage
what several analysts said could be billions in outflows.
“Given that Total Return is invested in highly liquid securities, and currently has above average liquidity simply due to the strategies we've had in place in recent months, we are confident that we will be able to handle even significant levels of client redemptions from the portfolio,” according to the manager, Mihir P. Worah.
Pimco
said late Friday that Mr. Worah, Scott A. Mather and Mark R. Kiesel would take over the firm's nearly $222 billion flagship fund in the aftermath of Mr. Gross' abrupt departure to Janus
Capital Group Inc.
The portfolio managers have been deputy chief investment officers since January, after the
also-unexpected announced departure of Mr. Gross' then-heir apparent, Mohamed A. El-Erian.
A number of advisers and other analysts have said that, despite Pimco's generally well-regarded investment staff, the change of a top manager is automatic grounds for closer scrutiny, at a minimum.
“Investors that had previously stayed with the fund, despite its recent record, now no longer can point to the long-term record of Gross,” Todd Rosenbluth, director of ETF & mutual fund research at S&P Capital IQ, wrote in a note Monday.
But the new portfolio managers moved to calm those fears by saying the top investment decisions have been and remain the purview not of individual star managers but of Pimco's investment committee.
“As with every other generalist portfolio manager at Pimco, Bill Gross relied on us — along with the firm's 240 other portfolio managers — for help in generating the trade ideas that have driven the strategy's strong historical performance,” Mr. Kiesel said. “We're intimately familiar with the portfolio and its holdings, and when we took over the strategy there were no surprises. It was a seamless transition.”
The fund's institutional share class (PTTRX), a common core holding in investor portfolios, beats nearly all its competitors over the last 15 years. But over the last year, it's in the bottom quarter when compared with competitors. Over the past three- and five-year periods, it's in the top 21% and top 40%, respectively, according to Morningstar Inc.
The managers gave new insight into how their team would work. Mr. Mather said big decisions, such as the firm's strategy on duration exposure, lie with the investment committee. He said the trio would defer to specialists to resolve disputes between them, but that Mr. Mather would have the ability to make a final decision if disagreements persist.
The fund managers have a tall order ahead of them. As a general matter, bonds are highly sensitive to rising interest rates. As the U.S. economy continues to grow, those rates are likely to rise from historic lows. Bets on duration, or exposure to those rate rises, will increasingly come into focus.
Under Mr. Gross, Pimco developed an overarching investment template for that environment, known as the New Neutral (which replaced the New Normal).
The basic premise of that philosophy is that the Fed will raise the federal funds rate at a slower-than-normal pace. Among the implications, while returns on traditional assets will be low and hard to come by, there will still be enough liquidity in financial markets to support continuing gains in bonds for investors willing to search far and wide.
The new Total Return managers say they still believe in the New Neutral.
Though none have the fame of Mr. Gross, each of the new managers has unique specialties.
Currently, Mr. Mather — a 16-year Pimco veteran who studied engineering before trading mortgage-backed securities for the
Goldman Sachs Group Inc. — runs “core” strategies for Pimco. That came after stints running
portfolio management in Europe. Before that, he co-headed the team that covers asset-backed securities.
As of Friday, Mr. Mather's dollar-hedged Pimco Foreign Bond fund (PFORX) was beating at least 92% of its competitors over the one-, three- and five-year periods, according to Morningstar.
Mr. Worah, a theoretical physicist by training, heads the real return and asset allocation teams at Pimco. His Pimco Real Return Fund (PRRIX) also beat more than 92% of its competitors over the last one-year, three-year and five-year periods.
Mr. Kiesel leads the credit-focused investment team at Pimco, with a focus on securities like corporate bonds, which have increasingly drawn investors for their enhanced return potential. He runs the Pimco Investment Grade Corporate Bond Fund (PIGIX), which is in the top 37th percentile over the last year, 12th over three, and 15th over five.
