The World's Biggest Mutual Fund Takes a $41 Billion Hit

Losses and redemptions have shrunk Pimco's Total Return Fund 14 percent in four months.
Financial manager and investment author Bill Gross, who co-founded Pacific Investment Management (PIMCO), in 2011 Photograph by J. Emilio Flores/Corbis

With investors anticipating the end of the Federal Reserve’s stimulus program, the biggest mutual fund in the world, Pimco’s Total Return Fund, took a $41 billion hit over the past four months after losses and withdrawals, according to Morningstar.

The $292 billion fund has shrunk to $251 billion, a reduction of 14 percent, since May, the month that Federal Reserve Chairman Ben Bernanke told Congress that the central bank’s $85 billion in monthly asset purchases could begin to wind down toward the end of the year. The Federal Open Market Committee’s next meeting is set for Sept. 17 and 18.

Launched in 1987 by “Bond King” Bill Gross, Pimco’s Total Return Fund has been a reliable standout—beating an average of 75 percent of its peers in each year of the past decade. So far this year, however, 87 percent of similar funds have better returns.

Broad bond indexes have declined this year on speculation that the Fed’s easy-money policies, known as quantitative easing, will begin to tighten. Bond prices fall when yields rise, and yields on 10-year U.S. Treasuries have climbed to 2.97 percent from 1.76 percent at the start of the year.

Gross wrote about what feels like an especially uncertain investing outlook on Pimco’s website today, after a digression on Cracker Jacks and baseball. With many investors considering shifting bond money into stocks in what may or may not be a “Great Rotation,” Gross cast doubt on equities as an asset class. “I don’t know,” he wrote. “When the Fed stops the QE game, it seems that stocks might be at risk. After all, haven’t they more than doubled in price since 2009 in part because of it?” He added: “Grab for the prize at Jack’s bottom if you will, but the safer and perhaps most rewarding treat lies at the top with those front-end yields and inflation-protected securities based on our evolving age of central bank ‘forward guidance.’”

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