(Bloomberg) -- Pacific Investment Management Co., the firm that has been pushing into equities since 2009, is expanding its stock offerings by adding seven new strategies with Robert Arnott’s Research Affiliates.

The new mutual funds will cover big and small stocks from the U.S. and worldwide, including emerging markets, according to a statement today from Newport Beach, California-based Pimco and Research Affiliates. Arnott’s firm has developed an enhanced indexing methodology that picks and weights securities based on fundamental factors rather than market value.

“It falls neatly between those investors who have made a decision to invest in a passive approach and yet this avoids the inefficiencies of passive investing,” Douglas Hodge, Pimco’s chief executive officer, said in a telephone interview. “It’s been a proven winner.”

Pimco, best known for bond funds that were led for decades by former Chief Investment Officer Bill Gross, started pushing into equities about five years ago to reduce its reliance on fixed-income investing. Michael Diekmann, CEO of Pimco parent Allianz SE, said in 2013 that the bond manager’s expansion into stocks was proving more difficult than expected.

Pimco, which oversaw $1.87 trillion as of Sept. 30, is diversifying as investors seek alternatives to fixed income because of concern that the three-decade bond rally may end. The firm is also seeking to stem record redemptions after the abrupt departure of co-founder Gross, who joined Janus Capital Group Inc. three months ago.

GROWING SEGMENT

Arnott, 60, debuted what his firm calls “fundamental indexing,” which shuns the standard way of picking index components based on market capitalization, in 2005. Research Affiliates has licensed the use of its proprietary indexes to companies including Atlanta-based Invesco Ltd. Now, there are 11 separate equity strategies at Pimco using that framework, with $30 billion in assets through Sept. 30.

Pimco had less than $10 billion in active equity strategies. The firm had about $45 billion in StocksPlus and IndexPlus funds that seek to beat stock benchmark indexes by tracking them with derivative instruments such as total return swaps and futures, supplemented by bonds.

Exchange-traded products that tweak indexes to boost returns, which Morningstar calls strategic beta, grew to 19% of the U.S. market from zero in 2000.

Arnott’s two mutual funds, which invest in a basket of Pimco funds, control a combined $50.8 billion, down from $68 billion in April 2013.

COMMODITIES SLUMP 

The $31.3 billion Pimco All Asset Fund beat 50 percent of peers in the five years through Jan. 7, and the $19.5 billion Pimco All Asset All Authority Fund outperformed 13% of comparable funds, according to data compiled by Bloomberg. As of April 2013, both were beating 99% of the competition over five years.

The funds focus on real return, according to their description on Pimco’s website. Real return strategies specialize in investments that can shield investors from inflation, such as Treasury Inflation-Protected Securities, commodity indexes, and real estate.

Performance at both funds this year has been hurt by exposure to commodities and emerging market bonds denominated in the local currencies, according to their semiannual report through Sept. 30 and November commentary.

The $1.3 billion Pimco StocksPlus Absolute Return Fund, which seeks to beat the Standard & Poor’s 500 Index, returned 14.4% last year, beating 87% of its peers, according to data compiled by Bloomberg. Over five years, the fund has outperformed 96% of peers. Saumil Parikh and Mohsen Fahmi took over management of the fund in September after Gross’s departure.

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