Pimco Total Return Suffers 29th Month of Investor Redemptions

  • Clients pulled $2.3 billion from bond fund in September
  • With $95.5 billion, pool is now one-third its peak in assets

Pacific Investment Management Co.’s flagship fund had its 29th straight month of client redemptions in September from what was once the world’s largest mutual fund.

Investors pulled $2.3 billion from the Pimco Total Return Fund, according to statements by the firm, which oversees $1.52 trillion in total assets. Last month’s redemption follows outflows of $1.8 billion in August, $2.5 billion in July, and $3 billion in June. Assets in the fund have plunged to $95.5 billion from a high of $293 billion in April 2013.

Customers have yanked record amounts of money from the fund over concerns about rising interest rates, fluctuating performance and last year’s sudden departure of Bill Gross, the Pimco co-founder who had managed Total Return for decades. Outflows in August reduced the fund to less than $100 billion for the first time since January 2007, before strong returns during the financial crisis spurred an influx of cash from investors seeking the relative safety of bonds.

The fund, now run by Scott Mather, Mark Kiesel and Mihir Worah, returned 0.6 percent this year, outperforming 47 percent of peers as of Oct. 1, according to data compiled by Bloomberg. Kiesel is bullish on the U.S. corporate bond market, excluding commodity-related company debt. He said in an interview this week that higher rates will be a boon to credit investors, and corporate fundamentals remain strong in a lukewarm economic growth environment, which is “perfect for bonds.”

The Pimco Income Fund, managed by Group Chief Investment Officer Dan Ivascyn, has gathered $10.3 billion in net new client money this year, and assets reached about $50 billion, according to the statement.

Income Fund’s Performance

The income fund, which at the end of August had $49.2 billion, returned 2.2 percent this year, beating 97 percent of peers, according to Bloomberg data. It has ranked in the top percentile against its rivals over the past three and five years.

Pimco Chief Executive Officer Douglas Hodge has said investors are returning to Pimco as uncertainty about the firm following Gross’s exit abates. The “trajectory of flows has changed significantly over the last nine months,” Hodge said in June at the Morningstar Investment Conference in Chicago. Flows now reflect investors searching for strategies that will better weather a rising interest-rate environment than a core fixed-income fund, Pimco has said.

Total Return was the largest mutual fund until October 2013. It lost the title of world’s biggest bond fund this April as investors continued the exodus from actively managed products.

The Vanguard Total Bond Market Index Fund, a passive product tracking a broad fixed-income benchmark, is now the industry’s biggest bond fund, with $118.4 billion in assets at the end of August. That fund has gained 1.1 percent this year, ahead of 77 percent of peers.

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