Nearly six months after Bill Gross's exit, Pacific Investment
Management Co.'s flagship Total Return fund is beating most of its
rivals.
The world's biggest bond mutual fund has returned 3.730% from
the start of October through Tuesday, ahead of 92% of its peers and
its benchmark, according to fund-research firm Morningstar Inc.
Mr. Gross, founder of the Newport Beach, Calif., firm and the
fund's portfolio manager, left in late September following a year
of heavy outflows and conflicts with other executives. In the nine
months leading up to Mr. Gross's departure, the Total Return fund
was trailing 80% of its peers.
"Though Bill Gross was made to leave the ship at the height of a
storm, the new team guided it into calmer waters," said Jeff
Tjornehoj, head of Lipper Americas Research. "Investors will take
note if the fund manages to outperform in the coming months."
The Total Return fund boosted returns by paring back wagers on
some regular U.S. government debt and being nimble in some riskier
types of bonds.
But the improving performance hasn't kept investors from yanking
money from the fund, whose assets have fallen by 57% from their
April 2013 peak. February marked the 22nd consecutive month of net
outflows, although the size of the withdrawals has moderated. The
$124.7 billion Total Return fund is at risk of losing its title as
the world's largest bond fund by assets to the Vanguard Total Bond
Market Index fund, a passively managed bond fund with $114.9
billion of assets.
Performance is "what we are 100% focused on," said Scott Mather,
one of the Pimco fund's managers, in a written statement Wednesday.
"There are many opportunities to take advantage of market
overshoots" in the coming years as the Federal Reserve moves closer
to raising interest rates for the first time since 2006, he
said.
The Pimco fund is now run by three managers--Mr. Mather, Mihir
Worah and Mark Kiesel--a departure from Mr. Gross's sole-pilot
mode.
The fund has returned 2.378% this year through Tuesday, beating
96% of its peers in the intermediate-term bond fund category,
according to Morningstar. The benchmark Barclays U.S. Aggregate
Bond Index returned 1.736% in the period.
After leaving Pimco, a unit of Allianz SE, Mr. Gross went to run
the $1.45 billion Janus Global Unconstrained Bond Fund at Janus
Capital Group Inc. The fund has handed investors a total return of
0.581% since Mr. Gross came on board Oct. 6, through Tuesday,
according to Morningstar. That beats 62% of its peers.
A spokeswoman at Janus declined to comment on the fund's
performance.
Institutional investors such as pension funds usually are slow
in moving in and out of funds. That means outflows could continue
to sting Pimco in the short term, analysts say.
One of Pimco's clients, Daniel B. Roe, chief investment officer
at Budros, Ruhlin & Roe Inc. which has more than $2.2 billion
assets under management, said it wasn't surprising that the fund's
performance was improving given the caliber of the portfolio
managers.
Mr. Roe said his firm significantly reduced exposure to the
Total Return fund following Mr. Gross's departure but the move was
due to an "already significant position" in the Pimco Income
fund.
"We continue to hold client money in the total return strategy
in 401(k)s," said Mr. Roe.
In its latest monthly commentary for February posted on Pimco's
website, the Pimco fund's managers said exposure to Treasury
inflation-protected securities was the largest contributor to
outperformance during the month versus the benchmark index.
They also highlighted holdings in riskier, high-yielding debt,
high-grade municipal bonds and dollar-denominated emerging-market
debt.
The Pimco fund lumps its holdings of TIPS along with regular
Treasury bonds and other debt in a category called U.S.
government-related holdings. The holdings accounted for 35.29% of
the fund's allocation at the end of February, compared with 37.71%
at the end of January, and 43.19% at the end of December, according
to data available late Tuesday afternoon on Pimco's website.
"I am not invested with Pimco right now," said Keith Amburgey,
chief executive officer at Rutherford Asset Planning in Tampa, Fla.
Rutherford has more than $1 million of assets under management. "I
moved out what we had left when Gross left. But they have a good
team, so it wouldn't surprise me if they turned things around."
Kirsten Grind contributed to this article
Write to Min Zeng at min.zeng@wsj.com
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