Bond king Bill Gross and his Pimco Total Return Fund (PTTRX) can’t catch a break. Even in a solid year for bonds PTTRX is coming up lame.
Bill Gross watched investors pull money out of PTTRX — the world’s largest mutual fund — for an 11th consecutive month, according to data from fund-tracker Morningstar. Money flowing out of the PTTRX fund and away from Bill Gross in March came to $3.1 billion.
Some of that might have to do with the surprise departure of Pimco CEO Mohamed El-Erian. News reports looking into the relationship pretty much depicted Gross as a seething megalomaniac. That couldn’t sit well with the conservative institutional investor base of the Pimco Total Return fund.
But even more than that, investors dislike bad performance — and Bill Gross has been swimming in it lately.
PTTRX lagged 95% of its peers last month, according to Morningstar. The fund returned a negative 0.57% in March vs. a 0.17% gain for the Barclays Aggregate Bond index.
With few exceptions, both actively managed competitors as well as passive index funds are beating Bill Gross at his own game.
It looks like the response Bill Gross had to El-Erian quitting isn’t sitting well with institutional investors, either. Promoting six fund managers to deputy chief investment officers bulks up Pimco’s management — but it hasn’t done much to win the confidence of the pension funds and endowments that are bread and butter for PTTRX.
Maybe it’s death by a thousand cuts. PTTRX and Bill Gross were embarrassed a couple of years ago when the bond king famously bet the wrong way on Treasuries. More missteps only make Bill Gross look all-too human.
PTTRX Can’t Beat the Benchmark
Mostly, though, it comes down to performance.
Even institutional investors can make the mistake of chasing big returns. And outperformance in the past is partly how PTTRX grew to have net assets of a quarter of a trillion dollars at one point. During the 10 years from 2000 to 2010, for instance Pimco Total Return generated an amazing 7.2% annually.
However, when the performance isn’t there, there’s no reason to stick around.
After all, outperformance is what investors pay Bill Gross for, and if he’s having a losing season (or two), there’s no reason to invest with him. Alternatives like bond exchange-traded funds are cheaper, for one thing. The iShares 20+ Year Treasury Bond ETF (TLT) has an expense ratio of 0.15%. At 0.46%, Bill Gross and PTTRX cost more than four times as much.
There’s no way around it: PTTRX is off to a bad start in 2014. A return of 1.3% lags both PTTRX’s category, as well as its index. PTTRX is faring so poorly this year that it ranks at 85 for funds in its category. And it’s not the bond market’s fault. TLT is up nearly 8% so far this year.
Investors in PTTRX are counting on Bill Gross to do a lot better than that. PTTRX has beaten its index and peers over the last three, five and 15 years. But in 2013 PTTRX lagged its category and Bill Gross still hasn’t turned it around.
Until Bill Gross can get PTTRX humming again, investors have every reason to keep pulling their funds. Don’t be surprised if the streak of outflows at PTTRX extends to 12.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.