(Bloomberg) -- Pimco Total Return Fund, once the world's largest mutual fund under former manager Bill Gross, is within about $1 billion of being overtaken as the biggest actively run bond fund.
The fund's assets fell to $82.6 billion as of Oct. 31, the company said Wednesday on its website. That's a more than 70% drop from its peak in April 2013, as investors pulled money, and puts it within striking distance of being passed by the Metropolitan West Total Return Bond Fund, which by comparison has more than tripled in size over the past 3 1/2 years to $81.5 billion at the end of last month.
Pimco Total Return lost its ranking as the biggest mutual fund in 2013, a victim of rising interest rate fears and the broad investor shift toward indexing, even before Gross's exit in September 2014 spurred a rush of outflows. Its flagging fortunes reflect the long-term impact of losing a star manager, while MetWest's asset growth shows the faith investors place in a team that has worked together for two decades, according to Karin Anderson, an analyst with Morningstar.
"What a lot of people were looking for in the post-Bill Gross departure from Pimco was a stable team — team being the key word," Anderson said in a telephone interview. Morningstar gives the MetWest fund a gold rating and the Pimco fund a bronze.
Pimco is a more diverse firm than it was when it was best known for Gross's fund, according to spokeswoman Agnes Crane.
"Pimco has been broadening its offerings to meet client investment needs for years and we're stronger for it," Crane said.
Even as the now team-managed Pimco Total Return Fund has been losing investors, assets at Newport Beach, California-based Pimco were up 8% this year as of Sept. 30, reaching $1.55 trillion.
The Pimco Income Fund, whose main manager Dan Ivascyn replaced Gross as chief investment officer, led actively run bond funds in attracting new money this year through September, according to Morningstar. The $67.6 billion fund ranks in the top 1% of its Bloomberg peer group for three and five years.
Pimco and MetWest are Southern California neighbors and share another major connection.
Tad Rivelle, Laird Landmann and Steve Kane co-founded Los Angeles-based MetWest in 1996, a year after leaving Pimco. The MetWest team has attracted clients by delivering consistent returns in turbulent markets, shunning the limelight that Gross deployed to attract assets at Pimco for decades, Morningstar's Anderson said.
"This is a little bit more of a slow and steady approach," she said.
Doug Morris, a spokesman for MetWest parent TCW Group, declined to comment.
The MetWest fund returned 4.5% this year through October, compared with 4.6% for Pimco Total Return. Over five years, MetWest's annualized returns were 4.6%, compared with 3.8% for Pimco and 2.9% for the benchmark Bloomberg Barclays U.S. Aggregate bond index.
The largest fixed-income mutual fund now is the passively-managed Vanguard Total Bond Market Index, which had $143.3 billion in assets as of Oct. 31. It has gained 5.2% this year and averaged 2.8% over the last five years.
Pimco Total Return, boosted by Gross's strong long-term performance, became the industry's largest mutual fund in 2008. But, like many intermediate-term bond funds, it began losing assets in May 2013, when then-Federal Reserve Chairman Ben Bernanke stirred fears about rising rates by signaling an end to central-bank asset purchases, an episode known as the "Taper Tantrum."
After Gross's departure, consultants such as NEPC put several Pimco funds on "watch" status, prompting some institutional clients to leave. Pension funds for workers in El Paso County, Colorado, and the state of West Virginia voted this August to sell stakes in Pimco Total Return, following advice from other consultants.
NEPC has rescinded its cautionary rating, but once a fund gets ousted from a retirement plan it can be tough to regain favor, according to Micah Fannin, a senior investment consultant for Mercer.
"Plan sponsors aren't looking for reasons to make changes to 401(k) plans," he said. "Changes are expensive."