(Adds outflow figure for March and background on Pimco's
By Jennifer Ablan and Sam Forgione
NEW YORK, April 1 Investors pulled another $3.1
billion from Pimco's flagship fund in March, the 11th straight
month of outflows from the world's largest bond fund, and its
performance on the month lagged 95 percent of its peers due to a
spate of wrong calls by long-time manager Bill Gross.
The latest statistics for the Pimco Total Return Fund,
released Tuesday by Morningstar, increase the risk that more
money could flee the fund managed by Gross, whose shop has been
rattled by a management shakeup and disappointing performance.
So far this year, it has generated a total return of 1.29
percent, lagging its performance benchmark by 0.55 percentage
point and trailing the returns of 85 percent of its peers.
In all, investors have pulled $52.1 billion out of the fund
since last May, according to Morningstar data. The latest
outflows from the fund reduced the portfolio's assets to $232
Gross, co-founder of Newport Beach, California-based Pimco
and dubbed as the market's "Bond King," has been dealing with a
public falling-out with former heir-apparent Mohamed El-Erian,
who shared the co-chief investment officer title.
Several U.S. institutional investors, including retirement
systems, said they are closely monitoring the developments at
Pimco and have formally put Pimco on "watch lists," a signal
that they will keep a much closer eye on its performance than
"In short, underperformance the past 12 months coupled with
the leadership changes have led to investor concerns," said Todd
Rosenbluth, director of mutual fund research at S&P Capital IQ.
The North Dakota State Investment Board, which has about
$400 million invested with Pimco, put the fund on its watch list
on Feb. 28. The California Public Employees' Retirement System,
the largest U.S. pension fund, said it had not placed Pimco on a
formal watch list, but it was also paying close attention to
FUND BEGAN STRUGGLING IN FEB
Morningstar senior analyst Eric Jacobson said what hurt
Pimco Total Return's performance most in March was its
significant overweight position in shorter debt and its
underweight position in long-dated bonds.
The Barclays U.S. Treasury 20+ year Index posted returns of
0.79 percent in March alone, while the Barclays U.S. Treasury
5-7 year Index returned -0.82 percent for the same period.
"Having such short-term exposure has hurt the fund's
performance relative to its peers," Rosenbluth said. The Total
Return Fund had an effective duration of 4.71 years at the end
of February, according to data on the Pimco website. Duration is
a measure of a bond's price sensitivity to yield changes.
The Pimco Total Return Exchange-Traded Fund, an
actively managed exchange-traded fund designed to mimic the
strategy of the flagship mutual fund, was up 0.084 percent in
March but posted outflows of $53.4 million.
That marked the 11th straight month of withdrawals from the
ETF, which has $3.4 billion in assets, according to Morningstar
Rosenbluth said the ETF's performance in March benefited
from having less exposure to mortgage-backed securities and more
exposure to investment-grade corporate bonds. The Barclays U.S.
MBS Index fell 0.32 percent last month, while the Barclays U.S.
Corporate Investment Grade Bond Index rose 0.07 percent.
Pimco's flagship mutual fund had a 29 percent exposure to
mortgages at the end of February, while the ETF had a lower
exposure to mortgages at 25 percent and a higher exposure to
U.S. credit at 11 percent, according to Pimco's website.
Jacobson said the Pimco Total Return portfolio began
struggling in February as the fund was "very underweight U.S.
investment-grade corporate bonds. That would have been a
detriment given that the overall investment-grade corporate
index returned 104 basis points for February, and returns were
better the farther down you went in quality."
Pimco spokesman Mark Porterfield 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 six months, two, five and 10 years."
The Pimco Total Return Fund's five-year and 10-year
annualized returns of 6.87 percent and 5.89 percent have
outperformed the benchmark Barclays U.S. Aggregate Bond Index by
2.07 percentage points and 1.42 percentage points, respectively,
according to Morningstar data, as of March 31.
Pimco, a unit of European financial services company Allianz
SE, had $1.91 trillion in assets under management as
of Dec. 31.
(Reporting by Jennifer Ablan and Sam Forgione; Editing by Chizu
Nomiyama, Jeffrey Benkoe, Paul Simao and Lisa Shumaker)