(Bloomberg) -- After star money manager Bill Gross left in 2014, Pimco seemed destined to fade from prominence and become just one of the many firms that dot the U.S. bond-industry landscape. But then Dan Ivascyn, the man tapped to replace Gross, got hot.
Almost no comparable fund in the country has matched the return of his Pimco Income Fund over the past three and five years. "It's performed exceptionally well, even shockingly well, over all periods," said Michael Rosen, the chief investment officer for Angeles Investment Advisors and a Pimco Income Fund client.
The fund returned 10.6% in the past 12 months alone and investor money is now pouring in at a pace unseen by any other actively-managed stock or bond fund, according to data compiled by Bloomberg and Morningstar.
Having swelled at the end of February to $75.4 billion, the fund reached a symbolic milestone: It overtook the old Gross-run fund that was once the world's largest, the Pimco Total Return Fund. Its assets have steadily declined since Gross's exit and now stand at $74.2 billion. Investors pulled another $1 billion from Total Return in February while adding about $2 billion in new money to the Income Fund, according to Bloomberg estimates.
To be sure, Ivascyn was already posting outsize returns prior to Gross's departure — that's part of the reason he was named to replace him — but his touch has been especially deft of late.
Alongside his Income Fund co-manager Alfred Murata, Ivascyn seized opportunities last year while others retreated. One example: They added subprime mortgage bonds, most of which were issued before the housing crash, after hedge funds were forced to sell at low prices to meet redemptions. They also snapped up riskier corporate and foreign bonds following the oil price plunge in February, the British vote to exit the European Union and the election of Donald Trump.
Before the November election, Ivascyn cut back on U.S. Treasury holdings, which he expected would fall in value as the economy improved and interest rates rose. After Trump's surprise victory sparked a surge in rates and drop in bond prices, he reloaded on longer-term debt that has subsequently risen in value as bond yields dipped.
The fund returned 2.75% since Nov. 8 compared with a 1.8% loss for the Bloomberg Barclays U.S. intermediate-term bond aggregate.
"You had three events where markets overreacted to some degree and you were able to take advantage of some attractive valuations," Ivascyn said at his Newport Beach, California headquarters, overlooking a yacht marina. "This year, when there's not a whole lot of fear in the market, you sit back and be patient."
The fund's performance has helped stabilize Pimco, a unit of Munich-based Allianz. The company reported that Pimco's net flows turned positive in last year's third and fourth quarters after a $500 billion drop in assets that dated to 2013.
Now, Pimco is trying to avoid the risk that Gross's exit exposed: relying too heavily on a single manager. Ivascyn's emergence as a superstar may make that challenge harder but he says the firm is focused on diversifying its talent by hiring experts in real estate, derivatives and other areas from firms such as Goldman Sachs Asset Management and Credit Suisse. Other funds such as Pimco Mortgage Opportunities, are flourishing, too. In fact, over the last two years, Gross's former fund has also outperformed most of its peers tracked by Bloomberg.
There's no love lost between Ivascyn and his Pimco predecessor. After his 2014 ouster, Gross, who now manages the $1.85 billion Janus Global Unconstrained Bond Fund, sued Pimco for breach of contract.
In his lawsuit, Gross, who co-founded Pimco in 1971, claimed he was deposed in part because Ivascyn and other partners wanted a bigger cut of the firm's profits. In 2013, Pimco awarded Gross a $290 million bonus, compared with Ivascyn's $70 million. Gross didn't reply to a request for comment. Ivascyn declined to discuss Gross, citing the litigation.
The two men could hardly be more different. Gross, 72, a fixture on television, known for his flair for colorful market commentary and a love of yoga, often bets big on the direction of broader markets.
Ivascyn, 47, specializes in reading the fine print. More comfortable in shirtsleeves than pinstripes, he would rather scour the mind-numbing pages of mortgage pooling and servicing agreements than appear on investment panels.
"I'm more a behind-the-scenes guy," he said. "I like to focus on the investment-management stuff."
Ivascyn peppers his conversation with phrases like "the optimal sizing of U.S. duration versus Australian duration" and "correlation matrices," which he allows "are very tough for the human mind to grasp." A Massachusetts native who joined Pimco in 1998 after stints at Bear Stearns., T.Rowe Price and Fidelity Investments, he has been known to read bond prospectuses while watching the Red Sox and Bruins.
Korey Bauer, co-manager of the $33 million All Terrain Opportunity Fund, a fund of funds with almost half of its assets invested with Pimco, said he worries Pimco Income could grow too large, becoming less nimble and losing its edge. For now, he said, "The Income Fund is making the right bets at the right time."