NEW YORK (Reuters) - Maybe Wall Street’s best-known bond shop should be known for its stock-picking instead.
Pimco, the fund company behind the giant $252 billion Total Return Fund, has long been most closely tied with manager Bill Gross and his reputation in the fixed-income market.
Yet for the second straight year, Pimco took home on Thursday the best large company equities award at the Lipper Fund Awards in New York. Los Angeles-based Hotchkis & Wiley Capital Management earned the Lipper equity award for small companies.
Equity management is just a fraction of the overall business of the Newport Beach, California-based firm. Its Pimco StocksPlus fund, for example, has just $1.4 billion in assets under management, just a rounding error compared to the Total Return Fund. But Pimco’s expertise in the fixed-income market may be giving the firm benefits in the stock market as well, analysts said.
“Their ability to manage fixed income is, in essence, a godsend because they have experience with making macro bets,” says Tom Roseen, head of research services at Lipper, a Thomson Reuters company. Consistent, risk-adjusted returns in their equity funds led to the Lipper Award recognition, Roseen says.
Most of Pimco’s funds don’t fit the traditional image of a fund manager poring over balance sheets to make picks. Instead, these “enhanced” index funds use derivatives and other instruments to make bets on the direction of the overall market, Roseen says.
The funds that earned Pimco the Lipper Fund Award for large equity management include the Pimco StocksPlus Short Strategy fund, the Pimco International StocksPlus Total Return Strategy Fund and the Pimco Fundamental IndexPlus Total Return Fund.
The awards come at a time when Pimco is making a push toward expanding its equity fund offerings. The company hired Neel Kashkari, who oversaw the $700 billion Troubled Asset Relief Program while at the U.S. Treasury, nearly three years ago, and followed that by hiring Anne Gudefin and Charles Lahr, two star fund managers from Franklin Resources. In December, the company launched the Pimco Dividend and Income Builder Fund, a new actively managed global dividend fund.
“Rounding out the portfolio is one way (Pimco) is trying to keep assets in house, especially when investors decide to change their asset allocation,” says Todd Rosenbluth, a fund analyst at S&P Capital IQ.
Despite the company’s award-winning funds, investors are still taking a wait-and-see approach before moving money into Pimco’s actively managed equity offerings, analysts say.
“It seems like three years’ performance is what people wait for in terms of track record before deciding whether a fund can hold up during a down market,” says Karin Anderson, senior fund analyst at Morningstar.
The sentiment is a common one among financial advisers, many of whom are keeping an eye on Pimco’s actively managed equity funds performance in case their client’s current fund picks begin to underperform.
“Although the managers are very experienced, they are very new to Pimco and we want to see how that works” before moving client assets into the funds, says Harvey Rowen, chief investment officer at San Francisco-based Starmont Asset Management.
Rowen likens the fund manager’s move to an organ transplant. “You can have a viable liver and transplant it into a viable host and for some reason it will fail. It’s all about the fit within the culture,” he says.
Editing by Beth Pinsker Gladstone, Jilian Mincer and Chizu Nomiyama