Bill Gross’ PIMCO Total Return Fund had US$5 billion in client redemptions last year as the world’s largest mutual fund trailed rivals, its first year of withdrawals in records going back to 1993, according to Morningstar Inc.
Clients pulled US$1.35 billion from the fund last month, according to Chicago-based research firm Morningstar. PIMCO Total Return, managed by Gross out of Newport Beach, California, returned 4.2 percent last year, trailing 69 percent of peers.
Gross missed a rally in US Treasuries as the European debt crisis spurred demand for government-backed debt. PIMCO Total Return in December 2009 became the biggest mutual fund in the history of the industry after beating most rivals and attracting a record US$50 billion in deposits that year. In the five years through Friday last week, the fund advanced at an annual rate of 8.1 percent, outperforming 97 percent of competitors.
“PIMCO built up some huge expectations and attracted an enormous amount of money from opportunistic investors,” Burton Greenwald, an independent fund consultant in Philadelphia, said in a telephone interview on Tuesday. “When the performance faltered, it turns out they had some speculative investors who left.”
In a letter in October last year to clients titled “Mea Culpa,” Gross called last year a “stinker” of a year. After eliminating Treasuries from the portfolio in February, Gross returned to the securities, bringing government and Treasury debt to 23 percent as of Nov. 30. Treasuries returned 9.8 percent last year, the most since 2008, according to Bank of America Merrill Lynch Indexes.
Lipper, a Denver-based research firm, said last month that the PIMCO Total Return Fund was on track for its first year of redemptions since its inception in 1987. Morningstar started compiling fund redemption records in 1993.
Redemptions from Gross’ Total Return fund represent about 2 percent of the fund’s US$240.7 billion in assets at the end of 2010, Morningstar’s data show. Assets rose to about US$244 billion at the end of last year, according to the data. Investors pulled money from PIMCO Total Return last year even as taxable bond funds attracted US$121 billion in deposits last year through Nov. 30, according to Morningstar.
PIMCO chief executive Mohamed El-Erian, who shares the title of chief investment officer with Gross, said on Wednesday last week in a Bloomberg Radio interview that the firm focuses on “long-term” performance rather than one-year numbers.
“Over a sustained period, Bill has consistently outperformed,” he said. “In fact, the five-year numbers are great, the 10-year numbers are great.”