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UPDATE 2-Pimco Total Return beats 76 pct of peers in August - Morningstar
August 29, 2014 / 4:05 PM / 3 years ago

UPDATE 2-Pimco Total Return beats 76 pct of peers in August - Morningstar

(Adds investor comment, year-to-date fund performance)

By Sam Forgione

NEW YORK, Aug 29 (Reuters) - Bill Gross’s Pimco Total Return Fund, the world’s largest bond fund, rose about 1.1 percent in August to beat 76 percent of its peers, preliminary Morningstar data showed on Friday.

The fund, which has $223 billion in assets and is the flagship fund of Pacific Investment Management Co, has notched that monthly gain through August 28. The performance was roughly equal to that of the benchmark Barclays U.S. Aggregate Bond Index over the period.

The Pimco Total Return Fund, which is closely watched in the industry, has had a rough year. Mohamed El-Erian, former Pimco chief executive and Gross’s heir apparent, resigned earlier this year, and investors have pulled about $65 billion from the fund since May 2013, Morningstar data show.

Gross is co-founder and chief investment officer of Pimco.

The $3.6 billion Pimco Total Return Exchange-Traded Fund , an actively managed ETF designed to mimic the strategy of the flagship mutual fund, also rose 1.1 percent over the same period, beating 81 percent of peers.

Analysts said the flagship mutual fund likely benefited from investing in longer-dated Treasuries compared with previous months. Treasuries with longer maturities have gained more than shorter-term Treasuries in August.

“A lot of money has gone into Treasuries, pushing yields down and rewarding funds that have taken on some interest rate risk,” said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ. “That, I think, is playing an important role in helping the fund’s performance stabilize versus some of its peers, many of whom have stayed short.”

The fund had a 45 percent exposure to U.S. government-related securities at the end of July, according to data on Pimco’s website.

The Barclays 25-plus Year U.S. Treasury Index has risen 4.7 percent this month through August 28, while the Barclays 5-10 Year U.S. Treasury Index has gained 1.4 percent. The Barclays 1-3 Year U.S. Treasury Index has risen just 0.15 percent.

Despite the Pimco Total Return Fund’s gain so far in August, which is on track to become its strongest in three months, its 4.3 percent gain for the year is still lagging 73 percent of peers, Morningstar data show.

The fund’s exposure to corporate credit such as high-yield bonds also likely boosted performance, said David Schawel, portfolio manager at Square 1 Financial.

“Yields across the developed world have been plummeting, so exposure to that probably helped,” he said.

Safe-haven U.S. government bonds have gained in August, partly on Russia-Ukraine tensions and economic data showing some weakness in Europe, while riskier high-yield bonds have rebounded after a selloff earlier this month.

A Pimco spokesman did not immediately return emailed requests for comment.

The Newport Beach, California-based Pimco, a unit of European financial services company Allianz SE, had $1.97 trillion in assets as of June 30, according to the firm’s website. (Reporting by Sam Forgione; Editing by Chizu Nomiyama and Jonathan Oatis)

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