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There IS Life After Bill Gross! Pimco Total Return Is Back to 5 Stars

While former bond king Bill Gross works diligently at Janus Capital Group Inc (NYSE:JNS) to reclaim some of his former glory, his old fund — Pimco Total Return (MUTF:PTTRX) — is doing fine without him.

Bill GrossHeck, it’s actually excelling.

Influential fund-tracker Morningstar just awarded PTTRX with a coveted fifth star — the highest rating possible — up from the four stars the fund was carrying at the very end of Bill Gross’s reign.

PTTRX lost its fifth star at the end of 2013 after a series of mistakes by Bill Gross led to a surprisingly long period of underperformance. Among Bill Gross’s biggest blunders was going all in against Treasuries in 2011. Not only did Bill Gross sell the entirety of PTTRX’s Treasury holdings, he even used derivatives to bet against them. Treasuries went on to become one of the best-performing asset classes that year.

It wasn’t clear at the time, but that’s when the clock started ticking on Bill Gross’s at Pimco. He compounded a bad 2011 by making another dubious pronouncement the following year when he proclaimed the death of equities. The market went on to gain 13% in 2012 and another 30% in 2014.

The bad calls aren’t what did Bill Gross in, however. It was a combination of poor performance and increasingly eccentric behavior.

Bill Gross Loses His Mojo

In 2011, PTTRX ranked No. 87 in its category. Bill Gross bounced back the following year when PTTRX placed 12 — and then the bottom fell out. PTTRX ranked at Nos. 60 and 71 for 2013 and 2014, respectively.

Those years of underperformance led investors in PTTRX to bolt. By the time Bill Gross abruptly quit Pimco for Janus in September, PTTRX had suffered 16 consecutive months of outflows. At its peak in May 2013, PTTRX had assets of $290 billion. By the time Bill Gross left, assets were down to $220 billion. (Assets have since shrunk to $135 billion.)

But if Bill Gross thought his departure would be the end of Pimco’s flagship fund, well, he might have to wait a while longer. Not only did PTTRX win back that coveted fifth star, but its new trio of managers have the fund back to its winning ways.

For the year-to-date, PTTRX ranks at No. 6 in its category, beating 95% of its competitors, according to data from Morningstar. It has returned 1.45% so far in 2015, beating the Barclays U.S. Aggregate benchmark by 0.38 percentage points.

Bill Gross’s new fund — the Janus Global Unconstrained Bond Fund (MUTF:JUCIX) — is still finding its footing. Although more than $100 billion has flowed out of Pimco over the last few years, very little of that has been redirected to Bill Gross. JUCIX has net assets of $1.5 billion, of which $700 million comes from Bill Gross’s own personal fortune.

So far this year, Bill Gross is letting his biggest investor down. JUCIX ranks 80th in its category with a year-to-date return of -0.08. Indeed, JUCIX is lagging the bond benchmark by 1.15 percentage points.

Pimco’s outflows might accelerated sharply when Bill Gross resigned, but you can bet billions will come back if PTTRX keeps up its five-star outperformance.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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