This was the year investors were supposed to make a great rotation from bond funds into stocks, but bonds are actually having a great year — unless we’re talking about Bill Gross and his Pimco Total Return Fund (PTTRX).
Take a blown call here, an embarrassing public spat there, and an extended period of underperformance, and institutional investors are beating a steady retreat from Pimco Total Return. Indeed, Total Return just suffered its 13th straight month of outflows, according to data from fund-tracker Morningstar.
Investors pulled another $4.3 billion from Pimco Total Return in May — or 1.9% of net assets — and that was during a period in which the bond fund finally beat its benchmark, gaining 1.3% vs. a 1.1% rise in the Barclays Aggregate index.
However, May was a rare win for Bill Gross and Total Return. For the year-to-date, PTTRX is trailing its benchmark with a gain of just 3.32% vs. a 3.87% increase in the Barclays Aggregate. The sluggish year-to-date performance has Pimco Total Return also lagging its peers, ranking at 80 in its category.
Bill Gross still might be the greatest bond fund manager in history, but he sure hasn’t been the king this year. It’s not hard to find bond funds that are beating Pimco Total Return in 2014, but some really do stand out. To compare apples-to-apples, we only looked at bond funds in the same category as PTTRX with similar risk profiles and that are open to new investors.
That led us to these three better bond funds than Pimco Total Return:
Better Bond Funds: Loomis Sayles Core Plus Bond A (NEFRX)
Loomis Sayles Core Plus Bond A (NEFRX) ranks No. 1 in its category for the year-to-date, generating a return of 5.92%. That beats the benchmark by a whopping 2.38% and its category by 2.24% so far this year.
Heck, this bond fund is having such a good year, it’s even beating the S&P 500. The trailing 12-month yield is pretty attractive too at 3.91%.
The expense ratio is above average for its category at 0.79%, but that’s still cheaper than the retail-class version of Bill Gross’s fund — the Pimco Total Return A (PTTAX) — which charges 0.85%. The big knock on Loomis Sayles Core Plus Bond A is that it has a maximum load charge of 4.5%, though that does go down depending on your purchase.
With total assets of just $1.7 billion, no one is going to confuse Loomis Sayles Core Plus A with Pimco Total Return, which still has $229 billion under its management. But the fund sure has delivered in 2014.
Better Bond Funds: AAM/Cutwater Select Income A (CPUAX)
AAM/Cutwater Select Income A (CPUAX) is a tiny intermediate-term bond fund with total assets of just $25.9 million. It has a load of 3%, which isn’t ideal for most investors, and the expense ratio of 0.99% is well-above average.
But the minimum investment is only $2,500, which makes it easy for retail investors to take part in this bond fund’s amazing outperformance.
CPUAX has a trailing yield of 3.32% and is a category leader for the year-to-date, generating a return of 6.09%. That bests the benchmark by 222 basis points and its category by 220%. (Again, that even outperforms the stock market. The S&P 500 is up 5.1% when factoring in dividends.)
CPUAX is a new fund, with performance data only going back one year, so it has at least a decade of success to go before you can put it in the same class as Pimco Total Return. But for this shining moment, at least, it’s clobbering Bill Gross’s bond fund.
Better Bond Funds: Leader Total Return A (LCATX)
Leader Total Return A (LCATX) isn’t a good fit for most retail investors, but there’s no getting around the fact that this $238.1 million fund has been putting up some outstanding returns.
LCATX is a very expensive fund. It has a load of 3.28% and expenses of 1.85%. So anyone making the minimum investment of $2,500 should understand that the fund simply has to outperform by a wide margin to justify its fees.
That said, LCATX is doing right by investors this year. At No. 2 in its category, it’s up 5.56% for the year-to-date, beating the benchmark by 179 basis points and its category by 177%. Additionally, the fund ranks No. 1 in its category for performance over the last year, with a gain of 8.83%.
That’s pretty amazing for a bond fund — especially at a time when bonds are supposed to be selling off — but take it with a grain of salt. LCATX has only been around a little more than a year, so it has no longer-term score card.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.