MutualFundWire.com: Pimco Gets Ink For All of the Wrong Reasons

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Friday, July 12, 2013

Pimco Gets Ink For All of the Wrong Reasons

The Pimco Total Return Fund's outflows show no sign of abating. After closing May with $31 million in net outflows and closing June with $543 million in outflows, the fund has already seen $63 million in outflows since July 1,Index Universe's Cinthia Murphy writes. Altogether that's roughly a loss of 13 percent of its assets since May.

According to commentary on its website, part of the reason Pimco has underperformed (aside from the Fed tapering announcement, which happened weeks after its first net outflows) is the fund's focus on the intermediate portion of the U.S. yield curve, Murphy reports.

According to Bloomberg's Miles Weiss and Alexis Leondis the biggest factor in the May losses was Gross choice to bet on TIPS, assuming the Fed and other central bankers would opt to stimulate their economies and thus fuel inflation. TIPS funds fell 7.2 percent from the end of April to June 28, which is double the Barclays U.S. Aggregate Bond Index decline. Yet, Gross hasn't admitted defeat on his TIPS bet, saying on Bloomberg TV that “trillions of dollars of check writing” by the Fed and other central banks will fuel rising prices over the next three to five years.

The WSJ's Min Zeng also covered the bad TIPs bet and more generally, bond fund managers fall from rock star status. Gundlach has fared better than Gross, however, as his fund held 4.8 percent in Treasury bonds at the end of May compared to Gross' 37 percent holding.

Though Bloomberg did not receive a response from Bill Gross on the subject, the WSJ printed a statement from a Pimco spokesman and a response from a Mihrir Worah, who heads Pimco's inflation linked investments and manages Pimco Real Return Asset bond fund:

A spokesman for Pimco, of Newport Beach, Calif., said the fund has delivered "investor value over myriad market cycles."

Worah said Thursday the fund posted a loss because it is a long-duration fund by design, which means its value is vulnerable to rises in bond yields. Worah also noted that demand for TIPS diminished as inflation is still low, so it is "not a good environment for TIPS."