Pimco's flagship fund loses status as world's largest bond fund

Pimco's Total Return Fund has seen investor withdrawals for 24 straight months

Pacific Investment Management Co. said investors pulled $5.6 billion from its Total Return Fund in April, causing the flagship fund to lose its status officially as the world's largest bond mutual fund.

The fund, at the top for more than a dozen years, gave way to an index fund managed by Vanguard Group.

The April withdrawals marked the 24th straight month of outflows from Total Return as the Newport Beach firm continued to deal with fallout from the exit late last September of its co-founder and star manager, Bill Gross.

The Pimco fund stood at $110.4 billion in assets under management, down 62% from its April 2013 high of $292.9 billion. Much of the loss has come since Gross left, but April’s drop was the smallest monthly withdrawal in the aftermath.

Vanguard, based in Malvern, Pa., said its Total Bond Market Index had $117.3 billion at the end April. And if exchange-traded funds that are sometimes counted as part of the main fund were included, the total would be $144.4 billion.

Pimco's fall from the top spot was chronicled last month in estimates by Chicago research firm Morningstar Inc. Total Return remains the biggest for actively managed bond funds; Vanguard’s fund is passively managed.

Still, the loss of status is symbolically significant for a firm that is credited with pioneering the very idea of actively managed bond mutual funds and that cultivated the field's first superstar manager. Gross became globally famous because of his investing acumen and his frequent market commentary on financial news networks.

Under Gross, Total Return’s peak was many times larger than its nearest competitor. Investment missteps and management turmoil, along with market forces, led to investor outflows, which soared after Gross' surprising exit in September.

Pimco's outflows, however, show signs of moderating. Investors had pulled $7.3 billion in March, $8.9 billion in February and $12.5 billion in January after huge jumps after Gross' departure.

The outflows flew in the face of the fund’s relatively strong performance under a new three-person investment team. For the year through April, the fund has returned 1.62%, about four-tenths of a percentage point above its main benchmark.

Total Return’s drop in investor money comes amid moderate inflows to bond funds in general and the rapid growth of rival actively managed bond funds. Funds at two Los Angeles companies, in particular, have grown rapidly at Pimco's expense.

From October through March, TWC Inc.'s Metropolitan West Total Return bond fund grew 82% to $63.9 billion, according to Morningstar. DoubleLine Capital's Total Return Bond fund grew 37% to $45.6 billion in the period.

Meanwhile, the financial world in general has been dealing with a significant investor shift toward low-cost passively managed funds, Vanguard's specialty.

For the year through March, actively managed bond funds saw inflows of $19 billion, or 0.8%, to $2.3 trillion. Passive bond funds, which are structured to automatically match an index, grew more than 4% on inflows of $15 billion to $396 billion, Morningstar said.

Twitter: @deanstarkman

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