Outflows Drag PIMCO Total Return Fund Assets Below $100B

Not too long ago, Pacific Investment Management Company (PIMCO) lost the crown of having the world’s largest mutual fund. Now, its flagship product PIMCO Total Return A (PTTAX) fund’s assets under management has dropped to an eight year low.

PIMCO Total Return hit a peak of $293 billion in assets under management in April 2013. It was the world’s largest mutual fund at that time. However, this Investment Grade Bond – Intermediate fund is now a shadow of its past. Following 28 straight months of outflows, PIMCO Total Return fund’s assets under management dropped below $100 billion in August. The PIMCO fund thus saw below $100 billion in assets for the first time since January 2007.

During the peak in April 2013, the fund was managed by bond investor extraordinaire William Hunt "Bill" Gross. Co-founder of PIMCO, Bill Gross, in a shocking move exited PIMCO to join Janus Capital Group (JNS) last year in late September. This move was shocking, but it was correctly predicted then that a number of PIMCO clients would follow Gross to Janus.

By November of last year, Gross’ new Janus fund had attracted significant inflows, but even that momentum has receded. A trend we have been noticing is funds shifting to Passive side after exiting the Active funds.

PIMCO’s Asset Drop

PIMCO Total Return Fund lost $1.8 billion in assets in Augus, which brought its outflow streak to 28 weeks. This also follows $2.5 billion of outflow in July. Assets were thus down to $98.5 billion as of Aug 31, dropping below $100 billion for the first time in over eight years. According to Morningstar, PIMCO Total Return fund’s assets were $99.86 billion in Jan 2007.

Separately, Morningstar data released last month revealed that PIMCO’s total outflows since Jan 2014 reached $212.8 billion in Jul 2015. This meant a 40% decline in assets. The only bright spot has been the inflows in PIMCO Income A (PONAX). This Diversified Bond fund saw inflows of $9.9 billion since Sep 2014, according to Morningstar. As of August end, it has $50 billion in assets under management. PONAX currently carries a Zacks Mutual Fund Rank #2 (Buy) and has returned 2.3% year to date.

However, the inflows into PIMCO Income are negligible compared to the outflows the PIMCO Total Return fund has witnessed. Since Sep 2014, PIMCO Total Return has lost $122.5 billion up until July; and the outflows continued in August. Outflows in January were a staggering $11.6 billion.

Bill Gross’ Exit in September

Bill Gross left PIMCO in September 2014 after a four-decade stay and joined the relatively smaller Janus. Gross moved in order to manage Janus Global Unconstrained Bond A (JUCAX), which had only $12.9 million worth of assets under management then.

Sources said that Gross’s exit also saw about $10 billion of withdrawals from PIMCO. It was predicted, and correctly so, that probably tens of billions in assets would flow out from PIMCO and perhaps land at Janus. It was believed that PIMCO Total Return fund would have significant liquidity to sustain investor redemptions.

Meanwhile, since Gross joined, JUCAX has shot up from about $12 million in assets under management to $1.2 billion by the end of Nov 2014. Gross-managed Janus Global Unconstrained Bond fund attracted $770 million in Nov 2014, adding to the $364 million inflow in October. The fund attracted $66.4 million in the concluding days of September when Gross joined Janus.

The Janus fund too is not at a healthy position. Until July, the Janus fund witnessed three consecutive months of outflows. This did affect the total assets, as Morningstar data showed that Janus Global Unconstrained Bond fund could only add $1.5 billion since its inception on May 27, 2014. Return has been weak too, as year-to-date loss is nearly 2% and 1-year loss stands at 3%.

General Trend of Outflow

It must be noted that the domestic equity-focused funds are facing tough time in terms of fund outflows. According to Morningstar data, US-focused mutual funds and exchange traded funds have seen $78.8 billion worth of outflows in the first seven months of 2015. This is higher than any full year outflows since 1993. (Read: Foreign Funds to Buy on Worst US Funds Outflow Since '93 )

The active funds saw outflows of $20,446 million in July while inflows of $6,175 million were recorded on the passive side. Over the last 1-year period, $158,607 million flowed out of active funds, while the passive funds added $140,836 million. (Read: Fidelity Suffers Massive Active Funds Outflow )

Largest Mutual Funds

For investors interested in buying funds with significant assets under management, we will present 3 funds that also carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). We expect the funds to outperform its peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund.

The funds have positive year-to-date and 1-year returns and also significant 3 and 5 year annualized returns. The expense ratio for these funds is below 1. The minimum initial investment is within $5000.

Fidelity Contrafund (FCNTX) seeks long term capital growth. FCNTX invests in companies whose values are believed to be underestimated in markets. FCNTX focuses on acquiring both "growth" stocks and "value" stocks of companies all over the globe. Factors such as financial strength and economic condition are taken into consideration before investing in a company.

FCNTX currently carries a Zacks Mutual Fund Rank #2. FCNTX’s total asset under management is currently $106.26 billion. It has year-to-date and 1-year returns of 1.3% and 3.6%. The 3 and 5 year annualized returns are 13.8% and 14.7%. Expense ratio of 0.64% is lower than the category average of 1.18%.

American Funds New Perspective A (ANWPX) seeks long-term capital appreciation. ANWPX invests in companies throughout the globe in order to take advantage of changes in factors including international trade patterns and economic relationships. ANWPX primarily focuses on acquiring common stocks of companies that are to have impressive growth prospects. ANWPX may also invest in companies that are believed to pay dividends in the future to generate future income.

ANWPX currently carries a Zacks Mutual Fund Rank #1. RPMGX’s total asset under management is currently $57.65 billion. It has year-to-date and 1-year returns of 0.8% and 0.7%. The 3 and 5 year annualized returns are 11.1% and 11%. Expense ratio of 0.76% is lower than the category average of 1.29%.

T. Rowe Price Growth Stock ’s (PRGFX) main objective is long-term growth of capital and, secondarily, increasing dividend income by investing primarily in common stocks of well-established growth companies. PRGFX invests a large chunk of its net assets in the common stocks of diversified group of growth companies. PRGFX normally (but not always) seeks investments in companies that have the ability to pay increasing dividends through strong cash flow.

PRGFX currently carries a Zacks Mutual Fund Rank #2. PRGFX’s total asset under management is currently $47.13 billion. It has year-to-date and 1-year returns of 5.4% and 8.7%. The 3 and 5 year annualized returns are 16.5% and 17.3%. Expense ratio of 0.68% is lower than the category average of 1.18%.

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