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 min.zeng@wsj.com
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