Bill Gross Bond Fund Posted $3.5 Billion Jan. Outflow

Investors pulled $3.5 billion net cash out of Bill Gross's Total Return Fund at Pacific Investment Management Co. in January, the smallest amount since May, when the outflow started.

January's net redemption, released by fund tracker Morningstar Inc. Tuesday, followed a record outflow of $41.1 billion out of Mr. Gross's fund last year. It compared to a $4.2 billion outflow in December. The Pimco Total Return Fund is the world's largest bond fund by assets, with $237 billion under management.

The slower pace of redemption comes as Mr. Gross's fund posted 1.35% in total return in January, rebounding from a loss of 1.92% last year, the biggest annual loss since 1994, according to Morningstar. Total return includes price gain and interest payments.

The developments likely offer a balm for Mr. Gross after a tumultuous year of record client withdrawals and last month's leadership shakeup.

Pimco announced in January that the high-profile chief executive and co-chief investment officer, Mohamed El-Erian, would quit in mid-March.

Mr. Gross, founder of Pimco, promoted a younger cadre of managers as part of the efforts to shore up the firm's competitive edge as its core business--traditional bond-fund offerings--has been hit by investors' preference for alternative bond funds and stock funds.

The Pimco Total Return fund, focusing on buying high-grade U.S. bonds such as Treasurys, has been the poster child of core bond funds. The fund took in $85.8 billion in new cash from 2009 through 2012 as investors sought refuge there amid global economic turmoil.

The fund stumbled last year as Treasury prices sold off and their yields climbed from historic lows amid a roaring U.S. stock market.

But this year, the fund has gained ground, benefiting from a broad rally in the U.S. fixed-income markets as U.S. stocks and emerging-market assets sold off.

The Barclays U.S. Aggregate Bond Index, a broad gauge of U.S. bonds and the benchmark for Mr. Gross's fund, gained 1.48% in January.

In his January investment outlook, Mr. Gross said he expects 3%-4% total return for bonds this year following the negative return last year.

"Total-return bond portfolios should float above water in 2014," said Mr. Gross. Still, he cautioned that positive returns are "no guarantees."

Mr. Gross's fund holds a strong long-term track record. The fund handed investors a total return of 6.1% on average in the past 10 years through Monday, beating 96% of its peers, according to Morningstar.

"Pimco believes that fixed income should be a key part of any diversified portfolio, whether it be institutional or retail, and we still see plenty of opportunities in the global market for bonds for the patient investor," said Mark Porterfield, Pimco's spokesman, in an emailed statement Tuesday. Pimco is part of Germany's Allianz SE (ALIZF, ALV.XE).

Write to Min Zeng at [e-mail]

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