Pimco's Flagship Fund Shrinks Again -- Update

By Min Zeng 

Investors withdrew cash in August for the 16th straight month from the Pimco Total Return bond fund run by Bill Gross, the latest reversal for the giant fund and its high-profile manager.

The $3.9 billion outflow marks the latest setback for the world's biggest bond fund and underscores the challenges facing Mr. Gross, co-founder and chief investment officer at Pacific Investment Management Co., following a spell of lagging fund performance and the departure earlier this year of Chief Executive Mohamed El-Erian.

Clients have pulled more than $60 billion net cash out of the fund between May 2013 and August 2014, according to fund tracker Morningstar. But many clients say they are sticking with the fund.

"The Pimco fund provides diversification in the down equity markets," said Steven Rogé, a portfolio manager at Bohemia, N.Y.-based R.W. Rogé & Co. The fund is still "a core holding for our clients based on Mr. Gross's ability to add value."

He said he hasn't reduced investments in the Pimco Total Return Fund over the past few months. The firm has more than $230 million in assets, including about $6 million in Pimco Total Return Fund.

A Pimco representative declined to comment on Wednesday. Pimco manages $1.97 trillion in global assets as part of Germany's Allianz SE.

The outflows have chipped away at the fund's size over the past year.

Assets in the Pimco fund fell to $221.6 billion at the end of August, compared with $223.1 billion at the end of July.

The Pimco fund's size has dropped every month after hitting a record high of $292.9 billion in April 2013. The fund remains the world's biggest bond fund by assets.

Asset numbers also take into account performance of the fund, while flow numbers don't.

Investors have kept a close eye on Pimco since Mr. El-Erian, groomed by Mr. Gross as a possible successor, quit as chief executive and co-chief investment officer earlier this year. The Wall Street Journal reported in February that Messrs. Gross and El-Erian had clashed openly.

The persistent outflows from the Pimco fund came even as investors have piled into bond funds broadly this year.

U.S.-listed bond mutual funds and exchange-traded funds attracted $11.4 billion in new cash in August, bringing the inflow this year to $92.5 billion, according to fund tracker TrimTabs Investment Research.

The Pimco fund has delivered mixed performances.

The Pimco fund received a total return of 1.11%, reflecting price changes and interest payments, in August, according to Morningstar. The fund benefited from a broad price rally in U.S. fixed income as Treasury bond yields tumbled to fresh lows of the year.

The fund's return compares to a 1.1% return for the benchmark Barclays U.S. Aggregate Bond Index, Morningstar said. The fund beat 77% of its peers for the period.

However, the Pimco fund's 4.03% return through Tuesday this year trailed 74% of its peers and was outpaced by 4.48% from the benchmark Barclays U.S. Aggregate Bond Index.

The fund maintains a solid long-term track record. Its annualized average return over the past 15 years through Tuesday was 6.86%, beating 96% of its peers.

"This is an awkward moment" for Mr. Gross, said Jeff Tjornehoj, senior research analyst for Lipper. But he added that "the steady drumbeat of monthly outflows are disappointing but there are still investors standing by thanks to the fund's excellent performance in the very long term."

Some clients aren't swayed by the continued outflows.

Daniel B. Roe, chief investment officer in Budros, Ruhlin & Roe Inc., said the Pimco fund's longer-term returns "still look great." He added that "we are not worried that Bill Gross has suddenly lost the talent and ability that made him so successful in the markets."

The firm, based in Columbus, Ohio, has more than $2 billion in assets under management, including over $175 million in Pimco funds.

Write to Min Zeng at [e-mail]

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