Pimco Total Return still shrinking, 9 months after exit of 'bond king'

Investors withdrew $3 billion last month from Pacific Investment Management Co.'s Total Return Fund, nine months after "bond king" Bill Gross quit as manager of the flagship Pimco fund and chief investment officer for the company.

The outflow was a relative trickle compared with the flood that followed Gross' abrupt exit in September, but it was up slightly from a $2.7-billion decline in May. That broke a five-month string of slowing withdrawals.

Pimco, a Newport Beach bond-management giant, said Thursday that Total Return had $102.8 billion in assets at the end of June. Once the world's largest bond fund, it now is No. 2 behind a Vanguard index fund.

Under Gross, the closely watched Total Return became a staple in retirement funds, peaking at $292.8 billion two years ago. Then, management turmoil and periods of underperformance started leading investors to flee.

After Gross left amid clashes with other top managers, outflows spiked at $17.8 billion in September, most of it in the final days of the month. The withdrawals hit $32 billion in October and averaged $16 billion a month from September through April.

Since Gross quit and began managing a small, freewheeling bond fund at Janus Capital Group, the three co-managers who replaced him at Total Return have turned in a solid performance, according to fund researcher Morningstar Inc.

From the time of Gross' departure through June 30, the fund was up 1.27%, compared with an average of 0.85% at comparable intermediate-term bond funds, Morningstar research showed.

That beat the returns at 75% of comparable "core" bond funds, which are designed to be a centerpiece of investors' fixed-income portfolios. These funds generally include a mix of U.S. government securities, corporate bonds and mortgage-backed securities, all with investment-grade ratings.

Gross' new fund, the Janus Global Unconstrained Bond Fund, has lost 0.59% in value since his arrival, Morningstar reported. That compared with a decline of 0.32% on average at comparable nontraditional funds, Morningstar said, with 60% of these funds beating Janus Global Unconstrained.

Janus said Wednesday that it had purchased a majority stake in Australian bond firm Kapstream Capital. Kapstream's founder, Kumar Palghat, who had worked with Gross at Pimco a decade ago, will become co-manager of the Janus unconstrained fund, the company said, although Gross will continue as its primary manager. 

The Pimco Income Fund, managed by Daniel Ivascyn, Gross' successor as chief investment officer of the company, continues to outshine the Total Return Fund and attracted $1.7 billion in inflows during June.

Pimco Income, a so-called multisector fund that can invest more aggressively, had delivered returns totaling 2.97% this year to investors, compared with an average of 0.68% at comparable funds and beating 98% of them, Morningstar said.

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