Morningstar Cuts Pimco Total Return Fund Rating From Gold to Bronze

   By WSJ Staff 
 

Investment-research firm Morningstar Inc. cut the $221.6 billion Pimco Total Return Fund, the world's largest bond fund, to bronze from gold in the wake of the resignation of its managing director, Bill Gross.

Morningstar said that although it remains positive overall on the fund, "uncertainty regarding outflows and the reshuffling of management responsibilities" following Mr. Gross's departure led to the downgrade.

Mr. Gross last week resigned from Pacific Investment Management Co., or Pimco, which he co-founded in 1971. He is joining Janus Capital Group Inc., where he plans to manage a newly created bond fund. Morningstar subsequently said it was placing all of the Pimco funds for which it offers analyst ratings on review. Pimco is a unit of German insurer Allianz SE.

Pimco chose Dan Ivascyn to take over as group chief investment officer. Three of the firm's deputy chief investment officers--Mark Kiesel, Mihir Worah and Scott Mather--have been tapped to run the flagship Total Return Fund.

"There are a number of reasons to believe they will be successful after the dust settles," Morningstar said. It added, however, that it would take some time to see how the Mr. Ivascyn and the new managers coalesce as a team.

"The challenges posed by outflows from the fund remain a wild card," the research firm said in its report, dated Sept. 29. Morningstar said, however, that it was cautiously optimistic about the fund's ability to withstand a "significant storm," citing the Pimco Total Return Fund's "hefty" 42% stake in a mix of U.S. Treasurys and agency mortgages, as well as cash flows from maturing securities and coupon payments.

The analyst ratings are qualitative judgments by Morningstar's staff. They are separate from the firm's older and better-known star ratings, which are quantitative calculations based on funds' risk-adjusted performance.

When Morningstar reviewed Pimco Total Return Fund after the departure of Mohamed El-Erian, who had run Pimco alongside Mr. Gross, in March, it left its analyst rating at gold.

--Daisy Maxey contributed to this article

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