PIMCO Total Return Gets Its Mojo Back
PIMCO has been in the news for all the wrong reasons lately, after more than $100 billion of clients money followed Bill Gross out of the door. But come early February there are signs the bond giant is getting its act together. While former CEO Bill Gross has moved down the street to run a new (much smaller) bond fund at Janus Capital Group Inc (NYSE: JNS ), his old fund – PIMCO Total Return Fund (MUTF: PTTRX ) – is doing just fine without him. The fund is performing so well in fact, that Morningstar has reinstated PTTRX with its coveted five star rating – the highest rating possible. PTTRX lost its fifth star at the end of 2013 following a long period of underperformance, caused by Gross betting the house against Treasuries in 2011. Gross was so sure Treasuries would fall he sold the entirety of PTTRX’s holdings, while using derivatives to bet against them. His bet was way-off, Treasuries went on to become one of the best-performing asset classes of the year. The result was PTTRX rankings plummeted to No. 87 in its category for 2011. They recovered in 2012 when PTTRX placed 12 – but the recovery didn’t last long. Gross’s mistimed call on equities meant PTTRX came in at Nos. 60 and 71 for 2013 and 2014, respectively. That patchy performance caused investors to start abandoning the fund long before Gross decided to quit. By September 2014 (Gross’s last month in charge.) PTTRX had suffered 16 consecutive months of outflows. At its peak in May 2013, PTTRX had assets of $290 billion. By the time Gross left, assets had fallen to $220 billion. In the wake of Gross’s departure, investors withdrew another $85 billion. But far from being the end of PTTRX, its trio of new managers have returned the fund back to winning ways. So far this year PTTRX has returned 1.45%, beating the Barclays U.S. Aggregate benchmark by 0.38 percentage points. While Morningstar ranks it at No. 6 in its category, beating 95% of its competitors. Despite the turnaround, investors are still abandoning the fund, with a reported $11.6 billion of outflows in January, leaving it with assets of $134.6 billion at month’s end. Sarah Bush, a Morningstar analyst, predicts the fund will continue shrinking through the first half of 2015. She believes that some institutional investors didn’t pull out of Total Return right away because they wanted to take some time to research comparable funds. Gross’s new fund on the other hand is still finding his footing, his new Janus Global Unconstrained Bond Fund (MUTF: JUCIX ) – ranks 80th in its category with a year-to-date return of -0.08. Indeed, JUCIX is lagging the bond benchmark by 1.15 percentage points. With the WSJ reporting that inflows into his new fund fell to about $86 in January, the lowest amount since Gross took over running the fund in early October. JUCIX has net assets of $1.5 billion, of which approximately $700 million comes from Bill Gross’s own account.