Pimco Bond Fund Recoups 2011 Outflows

--Pimco's Total Return Fund lured $1.36 billion inflow in June

--Pimco's Flagship Bond Fund took in $5.9 billion inflow in first half of 2012

--Year through June flow has outpaced $4.97 billion net outflow for 2011

For bond king Bill Gross, one of his selling points for the first half of 2012 is a triumphant comeback.

By the end of June, the biggest bond fund he manages has not only recouped all the net outflow for the calendar year 2011 but then gained some.

The $260.9 billion Pimco Total Return Fund (PTTRX) at Pacific Investment Management Co. drew in $1.36 billion of new cash during June, bringing the tally this year to $5.9 billion through June 30, according to the latest data provided late Monday afternoon by fund tracker Morningstar Inc.

The dollar amount for the first half of this year outnumbered the $4.97 billion net outflow for the whole of 2011. It was the first calendar-year loss for the fund since its inception in 1987 as Mr. Gross was stung by ill-timed wagers on Treasury bonds.

The turnaround was a reward for Mr. Gross, founder and co-chief investment officer at Pimco, whose fund has risen back to the top form after being a laggard in 2011. Winning back investors was a welcome relief for Mr. Gross, who wrote a letter to his clients late last year to pledge to improve performance.

The fund has handed investors a return of 5.75% through Friday, beating the 2.37% on the Barclays Capital US Aggregate Bond Index, according to data from Morningstar. The fund has beaten 96% of its rivals so far this year, a sharp reversal from last year, when its 4.16% return trailed nearly 90% of its peers and was below the 7.84% return on the benchmark.

Mr. Gross's portfolio has been heavily concentrated on high-quality U.S. assets this year, led by mortgage-backed securities and Treasury bonds. His play it safe posture reflects the company's worries over the euro zone's debt crisis which has clouded the global economic outlook.

A flight into Treasury bonds for safety had sent bond prices surging and pushed bond yields to record low levels. The benchmark 10-year note's yield tumbled to a record low of 1.437% on June 1 and late Monday traded at 1.582%.

Mr. Gross boosted Treasury holdings to 35% in May from 31% in April, the first increase in four months, according to the latest data from the company's web site. Mortgage backed securities, the biggest holding in the fund, was 52% versus 53% in April.

The MBS and Treasury holdings account for a whopping 87% of the fund, also reflecting Mr. Gross's belief there will be further Fed stimulus, probably a new bond-buying program, that could bolster bond prices.

The central bank in late June decided to extend its Operation Twist stimulus--with which it has been selling shorter-dated notes to buy longer-dated bonds--through the end of the year. The Fed said in the statement accompanying its late-June policy meeting that it is prepared to take further actions should the economy falter.

While the positions may get hurt if there is no new stimulus from the Fed, or if the euro-zone situation improves, Mr. Gross has been doing well so far this year amid the uncertainties over the euro zone and the U.S. growth outlook.

In his June investment outlook, Mr. Gross acknowledged the downside risk in holding Treasury bonds, especially at these low yield levels. Mr. Gross said Treasury bonds are still the "cleanest of the dirty shirts." But he warns that the glow of this primary safe-haven market could be tarnished by a darkening U.S. fiscal outlook if policy makers don't have a credible longer-term plan to address the deficit.

Write to Min Zeng at [e-mail]