UPDATE 2-Pimco suffers 14th month of outflows at Total Return Fund

Wed Jul 2, 2014 2:37pm EDT

(Adds analyst comment, Gross appearance in New York City)

By Jennifer Ablan

NEW YORK, July 2 (Reuters) - Bill Gross's Pimco Total Return Fund, the world's largest bond fund, posted $4.5 billion in net outflows for June, its 14th straight month of investor withdrawals despite an improving performance, Morningstar data showed on Wednesday.

The fund has had $64.1 billion in outflows since May 2013, the data showed. It had $225 billion in assets at the end of last month, down from a peak of $292.9 billion in April 2013.

The record outflow streak continued despite the fund's 0.37 percent gain in June, which beat 88 percent of peers, according to Morningstar. That said, the fund is up 3.70 percent for the year and trails 71 percent of its peers.

Analysts have said cash outflows began last year on weak total return performance, which led the fund to decline 1.9 percent for 2013 in its worst performance in nearly two decades. Manager Gross's public falling-out with former heir-apparent Mohamed El-Erian, who shared the co-chief investment officer title, also exacerbated investors' unease.

A Pimco spokesman said in a statement: "Patient investors are rewarded over the long term by sticking with core bond allocations in a diversified portfolio. The Pimco Total Return fund has outperformed its benchmark and a majority of its peers over the last 1, 3, 5, 10 and 15 years."

In June, Gross, co-founder of Newport Beach, California-based Pimco, gave a keynote address and took some questions at the company's annual investment summit in New York City, which was the largest Pimco-hosted client event ever with over 700 institutional investors and clients, Doug Hodge, chief executive of Pacific Investment Management Co., told Reuters.

The meeting was a sign Gross, dubbed the market's "Bond King," was trying to make amends with investors and the media after a brutal first half of the year.

Jeffrey Gundlach's DoubleLine Total Return Bond Fund at Pimco rival DoubleLine Capital attracted $503 million of inflows in June and has seen net inflows totaling more than $1.5 billion so far this year as of the end of last month, Los Angeles-based DoubleLine said.

"Advisers are usually looking at three-year performance because you don't want to make decisions based on incremental numbers," said Jeff Tjornehoj, head of Lipper Americas Research. "If you are going to stick someone in a bond fund, you're going to have a hard time defending or justifying the Pimco Total Return Fund's recent performance."

The Pimco Total Return Fund's three-year Sharpe ratio - a measure closely followed by pension funds, foundations and endowments - was hovering around 1.09, as of June, trailing the Barclays Aggregate Bond Index at 1.29. The average for the funds in Morningstar's intermediate-term bond fund category was 1.26 as of May, the most recent data available.

The higher a fund's Sharpe ratio, the better a fund's returns have been relative to the risk it has taken on.

The Pimco Total Return Exchange-Traded Fund, an actively managed ETF designed to mimic the strategy of the flagship mutual fund, had net inflows of $33 million in June, breaking its outflow streak, according to Morningstar. Total assets in the fund at the end of June were $3.4 billion.

Pimco, a unit of European financial services company Allianz SE, had $1.94 trillion in assets as of March 31. (Reporting by Jennifer Ablan; Editing by Chizu Nomiyama, Lisa Von Ahn and Meredith Mazzilli)