UPDATE 2-Pimco Total Return Fund starts year behind more than half its peers

Mon Feb 3, 2014 3:29pm EST

By Sam Forgione

NEW YORK Feb 3 (Reuters) - The Pimco Total Return Fund, the world's largest bond fund, trailed more than half of its peers in January despite returning to gains after a rough 2013, preliminary Morningstar data showed on Monday.

The fund, run by Bill Gross and which has $237 billion in assets, rose 1.35 percent in January, recovering from an annual loss of 1.92 percent in 2013, its worst annual loss since 1994.

The fund's latest monthly performance beat just 41 percent of its peers, according to Morningstar.

"2013 by most accounts was not pleasant for Pimco and Bill Gross certainly feels that way as well," said Morningstar senior research analyst Eric Jacobson. "I honestly give very, very little importance and significance to one month's figures."

Pimco, with $1.92 trillion in assets as of Dec. 31 according to the firm's website, is one of the most closely-watched bond managers, and Gross's investment decisions are highly influential to other investors.

Pimco has come under even closer scrutiny in recent weeks after the firm said last month that chief executive and co-chief investment officer Mohamed El-Erian would leave the company in mid-March, leaving Gross as the sole chief investment officer.

Pimco has since appointed six deputy chief investment officers to potentially succeed Gross. The firm, which stands for Pacific Investment Management Co, is a unit of European financial services company Allianz SE.

While Gross's fund benefited from a rally in U.S. Treasury debt prices last month, its focus on shorter-duration bonds kept it from notching bigger gains, said Todd Rosenbluth, director of mutual fund research for S&P Capital IQ.

"It worked against him, versus peers, to take this shorter-duration play," Rosenbluth said.

U.S. benchmark 10-year Treasury notes notched their biggest gain in 20 months in January on weaker-than-expected U.S. economic data and after a rout in emerging market assets spurred safe-haven bids.

The yield on the 10-year U.S. Treasury note slid 34 basis points in January to 2.67 percent, the biggest fall in yield since May 2012. Bond yields move inversely to their prices.

The Pimco Total Return Fund's largest holding of 45 percent was in U.S. government-related debt as of Dec. 31, according to data on the Pimco website.

Gross has recommended investors buy shorter-duration bonds in recent months on the view that the U.S. Federal Reserve will keep short-term interest rates low until at least 2016. The fund had an effective duration of 5.37 years at the end of last year, according to the Pimco website.

Prices on short-duration Treasuries rise less than longer-duration ones when prices rally. The Fed has promised to keep short-term interest rates low to support the U.S. economy, probably until 2015.

Relative to peers, the fund's performance in January was roughly unchanged from last year. The fund beat just 40 percent of peers in 2013 after bond prices dropped sharply on fears the Fed would reduce its monthly bond-buying stimulus.

The fund's 1.35 percent gain in January also lagged the Barclays U.S. Aggregate bond index's return of 1.48 percent. The index is the benchmark by which many U.S. bond funds gauge their performance.

The Pimco Total Return Exchange-Traded Fund, an actively-managed ETF designed to mimic the strategy of the flagship mutual fund, rose 1.66 percent in January, beating 90 percent of peers. The ETF has roughly $3.5 billion in assets.

Jeffrey Gundlach's DoubleLine Total Return Bond Fund , a competitor to the Pimco Total Return Fund, rose 2.21 percent last month, beating 99 percent of peers, the Morningstar data showed.

Despite the fund's strong performance, investors pulled about $525 million from Gundlach's fund in January, marking its eighth straight month of outflows, according to Morningstar. The DoubleLine Emerging Markets Fixed Income fund posted the second-largest outflow across the firm's U.S. mutual funds, at $17 million.

Gundlach is chief executive and chief investment officer of the Los Angeles-based DoubleLine Capital, which had over $52 billion in assets as of Sept. 30, according to the firm's website.

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