Pimco Total Return Fund lagging 87 percent of its peers this year

Fri Mar 28, 2014 12:21pm EDT
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By Jennifer Ablan

(Reuters) - The Pimco Total Return Fund, the world's largest bond fund, is trailing 87 percent of its peers so far this year, according to Morningstar data on Friday, in the latest setback for co-founder Bill Gross.

The Pimco Total Return, the Newport Beach, Calif. firm's flagship portfolio, is posting returns of 1.28 percent year-to-date as of March 27, trailing the benchmark Barclays U.S. Aggregate index by 75 basis points for the same period, according to Morningstar.

Pimco, which oversaw $1.91 trillion in assets as of December 31 according to the firm's website, has been in the spotlight since January's announcement that Mohamed El-Erian was resigning as Pimco's chief executive officer and co-chief investment officer.

February and March were brutal months for the Pimco Total Return Fund.

Morningstar senior analyst Eric Jacobson said the most important issue that hurt Pimco Total Return's performance in March "may have been that it was a blockbuster month for long maturity bonds and a lousy one for shorter maturities."

The Pimco Total Return Fund, which has $236.5 billion in assets, has been significantly overweight in shorter debt and correspondingly very underweight in long bonds, "so much so in fact that the fund has even been using swaps to achieve a modest short position on the longest maturity debt," Jacobson said.

The Barclays U.S. Treasury 20+ year Index is posting returns of 1.70 percent in March alone, while the Barclays U.S. Treasury 5-7 year Index is -0.61 percent for the same period.

The Pimco Total Return Fund also has long had a significant underweight to investment-grade corporate credit - 9 percent in the fund and 22.7 percent in the Barclays Aggregate - which Morningstar's Jacobson said "didn't help either given that the sector outperformed the broader market overall."   Continued...

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