After pulling billions, former Pimco investors may not be better off

Thu Dec 4, 2014 5:13pm EST
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By Jessica Toonkel

NEW YORK (Reuters) - When Bill Gross bolted Pimco in late September after months of mediocre performance in his Total Return Fund, clients including Wells Fargo & Co. WFC.N and Charles Schwab Corp SCHW.N pulled over $61 billion from the Newport Beach, California-based money manager. Where the money landed may be no better than where it left.

The reaction to Gross's sudden exit has put some money in rival bond funds that charge higher fees, produce lagging returns, have limited track records and in some cases, riskier holdings.

"Investors have made a knee jerk reaction away from Pimco, but in doing so they need to make sure that what they are buying is a better alternative," said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ.

Some funds with very short track records have shown inflows that coincide with the Pimco money exodus.

For example, the two-year-old, $576 million JPMorgan Global Bond Opportunities Fund GBOSX.O, received $346 million in inflows since Sept. 26, the day Gross quit, according to Morningstar Inc. The fund has returned 4.54 percent for the past year, ranking it among the top 30 percent of its peers, according to Morningstar.

Still, the fund's year-to-date total return of 3.56 percent lags the 4.74 percent total return of the $162.8 billion Pimco Total Return Fund PTTAX.O, which Gross ran for 27 years. And the JPMorgan fund costs more, with a net expense ratio of 0.66 for its institutional shares.

It is rare to see a less established fund gather that much in assets so quickly, Rosenbluth said.

"Usually investors like to see a three year track record," he said.   Continued...