Pimco Total Return loses title as world's largest mutual fund

Mon Nov 4, 2013 2:34pm EST
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By Sam Forgione

NEW YORK (Reuters) - Bill Gross's Pimco Total Return Fund had outflows of $4.4 billion in October, stripping it of its status as the world's largest mutual fund on lagging performance this year, data from Morningstar showed Monday.

The outflows marked the sixth straight month of withdrawals from the fund, and lowered its assets to $248 billion, according to Morningstar data. For the year, the Pimco Total Return Fund has had outflows of about $33.2 billion. The fund, which is managed by Pimco co-founder and co-chief investment officer Bill Gross, is still the world's largest bond fund, Morningstar said.

The Vanguard Total Stock Market Index VTSAX.O now holds the title of world's largest mutual fund with $251.1 billion, according to Morningstar.

The status of Gross's fund is important because Pimco manages roughly $1.97 trillion and is one of the world's largest bond managers. Gross's, and co-chief investment officer and chief executive Mohamed El-Erian's, views on global credit also influence other investors. Newport Beach, California-based Pacific Investment Management Co is a unit of European financial services company Allianz SE (ALVG.DE: Quote).

Investors have continued to pull cash out of Gross's flagship fund on fears interest rates will spike higher when the Federal Reserve scales back its stimulus, said Eric Jacobson, director of fixed income research at Morningstar.

Starting last May, bond interest rates shot higher on concerns that the Fed would begin reducing its $85 billion in monthly bond purchases. The yield on the benchmark 10-year U.S. Treasury note rose above 3 percent in September from 1.62 percent in early May.

Morningstar's Jacobson, who has been covering Pimco for over a decade, said that investors have likely withdrawn cash from Gross's fund this year given the fund's stumbles in response to those higher interest rates.

"Nobody's always going to be right on interest rate calls, but because he has been known for getting them right for a long time, it's a 'live-by-the-sword, die-by-the-sword' kind of problem," said Jacobson.   Continued...

The headquarters of investment firm PIMCO is shown in this photo taken in Newport Beach, California January 26, 2012. REUTERS/Lori Shepler