BUSINESS

Investor withdrawals slow at Pimco's flagship fund

Outflows from Pimco's Total Return Fund drop to levels not seen since before Bill Gross' exit last fall

Investors pulled $2.7 billion from Pimco's Total Return Fund last month, a sign that the worst is over for the flagship bond fund eight months after the departure of its star manager, Bill Gross.

The Newport Beach bond management giant said Total Return had $107.3 billion in assets as of the end of May, the fifth straight month of slowing withdrawals. May’s drop was the smallest since the tumultuous exit of Gross late fall triggered massive outflows totaling more than $106 billion.

Another sign of a return to normalcy: Pacific Investment Management Co. stopped sending out public announcements tracking the outflows, a practice it had begun in the wake of Gross' departure, and simply posted the new assets under management figures on its website.

One reason for the improvement, analysts said, has been higher returns Pimco has earned by pivoting from its star-centered system under Gross to a team-oriented approach under Daniel Ivascyn, Gross' successor as chief investment officer.

A triad of portfolio managers — Scott A. Mather, Mark R. Kiesel and Mihir P. Worah — has steered the fund to returns of 1.62% in the first four months this year, the latest data available show. That beat the Barclay's U.S. Aggregate Index by nearly four-tenths of a percentage point, a margin considered solid in the industry.

Indeed, Pimco's key funds have outperformed counterparts at those of Janus Capital Group Inc., where Gross now works — and that includes a fund run by Gross himself.

Pimco’s Total Return has gained 2.06% since Gross left Sept. 26, which is better than the 1.5% turned in by its counterpart at Janus, the Flexible Bond Fund, according to Chicago mutual fund research firm Morningstar Inc.

Since Oct. 6, when Gross started working at the Newport Beach office of the Denver firm, the Global Unconstrained Bond Fund he runs posted a negative 1% return, while Pimco’s version, also known as Unconstrained Bond, has returned 0.56% in the period, Morningstar said.

Under Gross, Pimco's closely watched Total Return became a staple in retirement funds worldwide. It peaked at $292.8 billion two years ago when management turmoil and periods of underperformance started leading investors to flee at the rate of an average of more than $4 billion a month.

After Gross left, outflows spiked to $17.8 billion in September, most of it in the final days of the month, hit $32 billion in October and averaged $16 million a month from September through April.

However, the outflows slowed to $8.9 billion in February, $7.3 billion in March and $5.6 billion in April.

It's too soon to tell if the crisis that accompanied Gross' departure is entirely over, but the company is on the right track, said Jeff Tjornehoj, a senior research analyst at Thomson Reuters' Lipper mutual-fund research firm.

“Outflows are definitely slowing,” he said. “I don't expect another spike in outflows.”

Still, $3 billion in outflows is large for any mutual fund, and competitors are still gaining market share. DoubleLine Capital in Los Angeles, for instance, said its Total Return fund, run by Jeffrey Gundlach, picked up $408 million in May, pushing the fund to $46.7 billion.

Pimco's competitors “have momentum right now, and it will be tough for [Pimco] to reverse that trend,” Tjornehoj said. “But I think it will happen.”

Twitter: @deanstarkman

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