While Mohamed El-Erian, heir apparent to Pimco co-founder Bill Gross, did not give a reason for his recent departure, the shakeup provides insightful glimpses into the industry for mutual fund and ETF managers.
El-Erian's departure, after all, comes as customers withdrew $40.4 billion of money from Pimco's flagship Total Return Fund last year, a record amount for the $2 trillion manager, according to Morningstar. Pimco's open-end mutual fund lineup suffered more than $30 billion in net outflows last year, according to Morningstar, which compares with $62.7 billion worth of net inflows in 2012. Pimco's taxable bond funds, representing the largest share of the firm's mutual fund business, suffered net outflows of more than $44 billion last year. The fixed-income funds had $55.4 billion in net inflows in 2012.
This dire state of fixed income follows several years of strong performance. "Pimco anticipated this trend and has ramped up their number of equity offerings, non-traditional bond products and their asset allocation products," says Morningstar's Michael Rawson. "But the inflows to their expanded list of product offerings failed to offset outflows to the Pimco Total Return Fund-which points to why in 2012, Pimco and Vanguard ranked as the top two asset gathers and in 2013, Pimco fell out of favor from a flows perspective," he says. The takeaway for mutual fund and ETF providers may be the importance of a diversified lineup of product offerings from the get-go, he notes.
Others see it differently. "The outflows from Pimco were a result of massive inflows in prior years-can't have big outflows without them-and those were the result of focus and discipline.... I'd say it's far better to be very good at one thing than mediocre at several," counters Lipper's Jeff Tjornehoj.