(Adds Pimco Total Return Fund's 5-year and 10-year performance figures; background)
March 31 (Reuters) - Pacific Investment Management Co. has been removed as subadvisor of two bond funds totaling $3.7 billion offered by ING U.S. Investment Management, though the decision by ING was made late last year before a management shakeup at Pimco, according to a regulatory filing with the SEC.
An ING spokeswoman told Reuters on Monday that the board of the ING Funds in October approved the merger of ING Pimco Total Return Bond Portfolio into the ING Intermediate Bond Portfolio. The merger closed on March 21, she said.
The board also approved a change in October to the subadvisor for ING PIMCO High Yield Portfolio, and a change to its name and investment strategy, she said.
Effective Feb. 4, the portfolio was renamed ING High Yield Portfolio and has since been subadvised by ING Investment Management Co. LLC. The ING Intermediate Bond Portfolio will also be managed internally, the spokeswoman said.
The changes were aimed at "overlapping ING Funds into those with similar or compatible investment strategies" deemed in the interest of shareholders by many board members, she said.
They would lead to "lower expense ratios, greater asset base in the surviving portfolio, and reduced overlap in funds offered in the ING Fund Complex," the spokeswoman said.
Pimco, based in Newport Beach, California, has been under intense pressure amid investor withdrawals from its mutual funds and underperformance by its largest fund, Pimco Total Return, which is managed by Pimco co-founder Bill Gross.
The ING news also comes as Gross deals with a public falling-out with his former heir-apparent, Mohamed El-Erian, who shared the co-chief investment officer title with Gross.
Pimco, which is a unit of European financial services company Allianz SE, didn't immediately respond to requests for comment.
On Friday, Reuters reported that the Pimco Total Return Fund, which holds $236.5 billion in assets and is the world's largest bond fund, delivered a total return of just 1.28 percent in the year through March 27, trailing 87 percent of its peer funds this year.
The Total Return's lackluster performance so far this year follows a dismal 2013, when misguided calls on how Federal Reserve policy would play out in the bond market led to a loss of 1.92 percent for the fund, its poorest showing in nearly two decades. Pimco saw its assets under management shrink by $80 billion in 2013 due to outflows and negative returns, according to Morningstar.
A spokesman at Pimco said: "It's important to compare a fund's performance with its benchmark and not just with other mutual funds, which could hold riskier and higher-yielding assets. Total Return has outperformed its index for the past 6 months, 2, 5 and 10 years."
The Pimco Total Return Fund's long-term track record is impressive. The fund's five-year and 10-year annualized returns of 6.90 percent and 5.88 percent have outperformed the benchmark Barclays U.S. Aggregate index by 2.04 percentage points and 1.41 percentage points, respectively, according to Morningstar data, as of March 28. (Editing by Bernadette Baum and Meredith Mazzilli)