Pimco Total Return Loses $3.9 Billion in August Outflows

Bill Gross’s Pimco Total Return Fund had $3.9 billion of net investor withdrawals in August, the 16th straight month of redemptions that began in May 2013 as performance faltered at the world’s biggest bond fund.

The fund, run by Pacific Investment Management Co. in Newport Beach, California, has assets of $221.6 billion, Chicago-based researcher Morningstar Inc. said today in an e-mailed statement. That’s down from a peak of $293 billion last year.

Gross, 70, has sought to stanch redemptions and reassure clients, saying in May that Pimco funds will again rank at the top by year-end. Pimco is betting on a “new neutral” era characterized by global growth converging toward lower, more stable speeds and interest rates that remain below their pre-crisis equilibrium.

Mark Porterfield, a spokesman for Pimco, declined to comment.

The formerly top-ranked Pimco Total Return has seen its five-year performance ranking against peers slip to the 62nd percentile, according to data compiled by Bloomberg. Total Return has climbed 4.03 percent this year, beating 43 percent of its competition.

Withdrawal Streak

Investors pulled a record $41.1 billion from the fund in 2013, according to Morningstar, as Vanguard Total Stock Market Index Fund overtook it to become the industry’s largest mutual fund. The withdrawal streak began when the Federal Reserve first hinted it would unwind U.S. stimulus measures, sparking concern that rising interest rates would create losses in bond funds.

Clients pulled $830 million in July after redemptions of $4.5 billion in June, the data show. Pimco Total Return has lost $24.8 billion to withdrawals in 2014, according to Morningstar.

The exchange-traded fund version of Total Return received net investor money of $87 million in August, bringing assets to $3.6 billion, the data show.

The research firm estimates deposits or withdrawals for mutual funds by computing the change in assets on a monthly basis that isn’t accounted for by performance. The fund’s actual withdrawals or deposits may differ from Morningstar’s estimates because of the timing of purchases and redemptions or dividend distributions.

Expansion Jeopardized

Gross said in his monthly investment outlook posted today that insufficient credit creation with economic growth of only about 2 percent jeopardizes the U.S. expansion.

“A credit-based financial economy, as opposed to pure cash, depends on an ever-expanding outstanding level of credit for its survival,” Gross wrote on Pimco’s website. “Credit creation is essential for economic growth in a finance-based economy such as ours. Without it, growth stagnates or withers.”

The velocity, or turnover of credit, is also a factor and is related to the level of interest rates offered in the economy, Gross wrote. Low rates on longer-term debt make holding short-term and cash securities more attractive.