The bigger they are, the harder they fall. Half of the 10 worst-performing funds in 2014 are Pimco funds, the Financial Times reported, citing data from research group Morningstar.
As I noted in a June 2014 InvestorPlace story, “Pimco’s Biggest Problem (Other Than Bill Gross),” the beginning of the end of the bond king’s reign was probably a few years back when he began to shorten the duration on his bond holdings to protect against what he had anticipated as declines in price resulting from rising interest rates. (The longer the duration, the more bond prices fall when interest rates rise).
But interest rates did not rise, and many of the bond funds managed by Bill Gross started to fall behind the averages. The resignation of his co-CIO and heir apparent, Mohamed El-Erian, compounded Pimco’s problems as monthly outflows from their biggest bond funds continued for more than a year and still continue today.
Here are 3 of Bill Gross’ worst bond funds of 2014.
Bill Gross’ Worst Bond Funds of 2014: PIMCO Total Return (PTTAX)
By far, the biggest loser of 2014 is PIMCO Total Return (PTTAX) with more than $75 billion in outflows.
Although PIMCO likes to highlight the Total Return fund’s 3-year performance, which ranks ahead of 72% of all intermediate-term bond funds, the 1-year performance placing the fund behind 84% of category peers tells a more complete story.
Once the largest mutual fund on the planet in terms of assets under management, the 2014 outflows pulled PIMCO Total Return’s assets below its passively managed alternative, Vanguard Total Bond Market Index (VBMFX).
With that said, the new management for the Total Return fund beat out 97% of competitors for its one-month return. Perhaps 2015 will be better for the fund. After all … it can’t get much worse.
Bill Gross’ Worst Bond Funds of 2014: PIMCO Low Duration (PLDDX)
PIMCO Low Duration (PLDDX) is just one-tenth the size of the Total Return fund, and the cash outflows in 2014 were also about ten times lower but that didn’t stop the Low Duration fund from making the list of the greatest mutual fund outflows of the year.
The Low Duration fund is a short-term bond fund, which means that liquidity is much more crucial for successful portfolio management. With nearly $7 billion in outflows for 2014, the management job becomes quite challenging, to say the least.
The 1-year performance rank places the Low Duration fund behind 70% of its short-term bond category peers.
Like the Total Return fund, PIMCO Low Duration has picked up its post-Gross performance, respectably placing in the top 35% of peers for its one-month return.
Bill Gross’ Worst Bond Funds of 2014: PIMCO Unconstrained Bond (PUBAX)
The 2014 outflows for PIMCO Unconstrained Bond (PUBAX) are not the worst in terms of dollars, but the 50% reduction in total assets is the second-worst reduction by percentage in 2014.
It is also of interest to note that Bill Gross’ new fund, Janus Global Unconstrained (JUCAX) has a similar objective as the PIMCO Unconstrained Bond fund. Therefore, comparisons of the two are arguably more interesting from an apples-to-apples perspective than a comparison to Bill Gross’ best known PIMCO Total Return.
Looking at recent performance, PIMCO’s Unconstrained Bond fund edges out the new Bill Gross Janus fund. Within the nontraditional bond category, PUBAX has a one-month rank of 19 and a three-month rank of 24, whereas Mr. Gross and JUCAX are at 25 on the one-month and 57 on the three-month return.
But with assets flowing out of PIMCO and into Janus, Mr. Gross will have an advantage in the near term looking forward. Only time will tell what the future holds.
As of this writing, Kent Thune did not hold a position in any of the aforementioned securities. Under no circumstances does this information represent a recommendation to buy or sell securities.