(Bloomberg) -- Pacific Investment Management Co.’s biggest mutual fund suffered about $11.6 billion in withdrawals in January, the 21st straight month of redemptions at the investment fund created and formerly run by bond manager Bill Gross.
The withdrawals slowed from $19.4 billion in December, and brought assets in the Pimco Total ReturnFund to $134.6 billion as of Jan. 31, according to data from the Newport Beach, California-based firm. Gross left Pimco on Sept. 26, prompting a combined $91.5 billion in redemptions from the fund from September through January.
The $1.68 trillion money manager, seeking to reassure investors and stem redemptions, has named top performers to run its biggest fund and is pointing to a rebound in returns since Gross left. Under its new leaders, Pimco Total Return advanced 2.98% in the past three months, beating 94% of peers, according to data compiled by Bloomberg. The fund has climbed 2.45% so far this year, also beating 94% of similarly managed funds.
“At this point, most people who’ve decided to exit have exited,” Michael Rosen, chief investment officer at Angeles Investment Advisers LLC in Santa Monica, California, said in a telephone interview. “I think that’s probably right unless performance starts deteriorating and then the floodgates will open again.”
TREASURY BETS
Performance was helped after the managers reduced bets on shorter-dated U.S. government debt in favor of Treasuries maturing in seven to 10 years, according to Scott Mather, who took over management of Pimco Total Return Fund in September along with Mark Kiesel and Mihir Worah. The managers also bet on a convergence between the extra yield investors demand to hold debt from certain countries, including debt from the U.S. and Mexico, and that of Germany and Italy.
Treasuries, which accounted for 43% of assets as of Dec. 31, according to Pimco’s website, returned 2.9% this year through Jan. 31, according to Bank of America Merrill Lynch index data, as investors flocked to havens amid renewed political turmoil in Greece and a bond-buying program by the European Central Bank.
In corporate credit, Total Return emphasized higher-quality debt with shorter maturities, a strategy that Mather said would continue to pay off until the economic cycle shifts.
The managers also reduced their sales of protection against volatility, Mather said. Since the end of November, the Chicago Board Options Exchange Volatility Index has been 25% higher than last year’s average.
REAL STRENGTH’
“We have great performance to show over the last month and four months,” Mather said in a telephone interview. “The real strength of our process is delivering those returns over a market cycle.”
Pimco Total Return suffered the worst client withdrawals in the history of fund management last year as investors pulled a record $105 billion, a year in which the firm lost both of its co-chief investment officers Gross and Mohamed El-Erian. The fund’s assets peaked at $293 billion in April 2013, before the Federal Reserve hinted it would unwind U.S. stimulus measures. Since then, assets have plunged by more than half as investors pulled money to protect themselves from rising interest rates and as performance faltered.
Pimco Total Return trailed a majority of peers for the second straight year in 2014 after missing a rally in longer- term bonds and betting that inflation would rise. The fund returned 4.7% in 2014, trailing 54% of comparable funds, according to data compiled by Bloomberg.
TCW, DOUBLELINE
Redemptions at the fund accelerated after Gross, who co- founded Pimco in 1971 and built it into one of the nation’s largest investment firms, left after clashing with senior executives. Gross joined Denver-based Janus Capital Group Inc. El-Erian, who shared the role of CIO with Gross and served as Pimco’s chief executive officer, announced his resignation from the firm in January 2014. He is now chief economic adviser at Pimco’s parent, Allianz SE, and a contributor to Bloomberg View.
Bond firms including TCW Group Inc. and DoubleLine Capital have benefited as investors review their investments with Pimco. DoubleLine, the Los Angeles-based bond firm co-founded by Jeffrey Gundlach, received a record $3 billion in January, after adding $7.4 billion from September through the end of the year. TCW’s MetWest Total Return Bond Fund saw $5.2 billion in new client money last month, after taking in $24.3 billion in 2014, according to Doug Morris, a spokesman for the firm.
BlackRock and Legg Mason were also helped by Pimco’s turmoil. BlackRock, the world’s largest money manager, attracted a record amount of new money in the fourth quarter. Last year was Legg Mason’s first calendar year of investor deposits since 2007 as performance improved.
