Mark Moehlman didn’t waste time before pulling his clients’ money out of Pacific Investment Management Co. after Bill Gross shocked investors with news of his departure.
“We sold out of our positions within the first couple of hours,” said Moehlman, managing director at Newport Beach, California-based Beacon Pointe Wealth Advisors. “Then we fielded calls all afternoon and the evening and through the weekend.”
The money, tens of millions of dollars, ended up in funds managed by TCW Group Inc. and Loomis Sayles & Co. Both firms have competing products that are beating the $222 billion Pimco Total Return Fund this year.
Gross’s departure is opening the door for smaller competitors to break Pimco’s dominance after the world’s biggest bond firm quintupled assets to $2 trillion over the past decade. TCW, Legg Mason Inc. and DoubleLine Capital LP all offer funds that are appealing alternatives to Pimco’s Total Return Fund, which has stumbled amid Gross’s bets and lagged rivals for three of the past four years.
Jeffrey Gundlach’s DoubleLine Total Return Bond Fund added about $400 million between Sept. 25 and Sept. 29, and assets at TCW’s Metropolitan West Total Return Bond Fund rose by more than $320 million over the same period, according to data compiled by Bloomberg. Legg Mason, which owns bond manager Western Asset Management Co., said it’s receiving new money, including into the Western Asset Core Plus Bond Fund.
Money Flowing
“We have seen some money come in already, both on the institutional and retail side,” said Joseph Sullivan, chief executive officer of Legg Mason, which managed about $500 billion in fixed-income assets as of June 30.“It is hard to imagine that anyone who has money at Pimco is not at least having a conversation about what they are going to do.”
Pimco CEO Douglas Hodge said during a conference call that the firm is expecting and is ready for client redemptions. Pimco could see withdrawals of 10 percent to 30 percent, Sanford Bernstein said in a report. Pimco has not disclosed how much money has left the firm since Gross’s departure.
Investors yanked a record $446.5 million from Pimco’s $2.9 billion Total Return ETF after Gross’ departure from the firm on Sept. 26., before slowing redemptions to $98 million on Sept. 29 and $87 million yesterday. The exchange-traded fund follows a similar investment strategy as the Pimco Total Return mutual fund.
BlackRock Inflows
Pimco’s largest competitors had already been benefiting this year as investors have moved away from the firm’s Total Return into top-performing rivals as well as flexible funds that can protect from rising interest rates. Pimco’s Total Return Fund has trailed competitors this year, trailing 62 percent of its peers, according to data compiled by Bloomberg.
Rick Rieder, who oversees more than $600 billion as CIO of BlackRock Inc.’s fundamental fixed income, said there’s interest among investors for flexible strategies and unconstrained funds. BlackRock’s Strategic Income Opportunities Fund has attracted more than $8 billion this year through August.
“There’s continued interest in strategies that don’t take on too much interest rate risk, are more stable and have low volatility,” Rieder said.
Rieder declined to say if BlackRock’s strategies have attracted money since Gross’s departure. A BlackRock exchange-traded fund that invests in traditional fixed income, the iShares Core U.S. Aggregate Bond ETF, has reported $752.3 million of inflows in two days after his exit, according to data compiled by Bloomberg. That represents a 4.1 percent increase in shares outstanding in the $19.2 billion fund.
MetWest Fund
Among more traditional strategies, the $32.9 billion Metropolitan West Total Return fund has advanced 4.4 percent to beat 70 percent of competitors this year, according to data compiled by Bloomberg, compared with Pimco Total Return’s 3.3 percent return. The fund, managed by a team led by Tad Rivelle, has added more than $7.6 billion in assets this year, including the impact of market appreciation, according to data compiled by Bloomberg. TCW manages about $141.6 billion in assets.
Doug Morris, a spokesman at Los Angeles-based TCW, declined to comment on investor deposits into the company’s funds.
Gundlach Returns
Gundlach’s $35 billion DoubleLine Total Return has returned 5.3 percent this year, beating 92 percent of peers. The fund’s assets have increased by almost $4.5 billion this year, according to data compiled by Bloomberg. Gundlach, who specializes in mortgage-backed securities, said in an interview that Gross discussed with him the possibility of joining DoubleLine, which manages more than $52 billion, before announcing he was going to Janus.
Gundlach said DoubleLine received hundreds of millions of dollars on Sept. 26 after Gross quit, the most money gathered in a day this year and the second-highest client deposits since the Los Angeles-based firm started in 2009.
Western Asset Core Plus Bond Fund, run by Legg Mason’s bond unit, has seen money come in this week, said Mary Athridge, a spokeswoman for the Baltimore-based firm. The fund has advanced 6.1 percent this year, beating 93 percent of peers.
JPMorgan Chase & Co. has seen increased interest in its fixed-income offerings this year as investors have focused on the potential for rising rates. Priscilla Hancock, global fixed- income strategist at New York-based JPMorgan, declined to say how much the firm has attracted since Gross quit.
Manager Turnover
“Any time there is manager turnover in any fund people use that as an opportunity to revisit and re-evaluate their fixed income holdings,” Hancock said.
Morningstar Inc., the Chicago-based researcher, cut the mutual fund’s rating to bronze from gold after Gross’s departure. The downgrade was prompted by uncertainty regarding potential capital outflows and the reshuffling of management responsibilities at the company, Morningstar said.
Investors have moved money away from traditional fixed- income managers this year in anticipation of rising interest rates. Pimco Total Return Fund has suffered withdrawals of more than $65 billion since the beginning of 2013, according to Morningstar.
Pimco named Daniel Ivascyn as group chief investment officer following Gross’s departure, and appointed Mark Kiesel, Scott Mather and Mihir Worah to take over management Pimco Total Return Fund.
401(k) Mainstay
The Pimco Total Return Fund is the largest fund held in 401(k) plans by assets, according to San Diego-based BrightScope Inc., which rates retirement plans, and at some employers it’s the only bond-fund option for workers.
Wilmington Trust, a unit of M&T Bank Corp. that advises wealthy families, has recommended that clients redeem shares of Pimco funds where Gross was the manager and has put other Pimco funds on watch, said Rex Macey, the firm’s chief allocation officer. Wilmington Trust, whose affiliates manage about $78 billion, has recommended as a replacement its own Wilmington Trust Broad Market Bond Fund and TCW’s Metropolitan West Total Return Bond Fund, he said.
“Our concern relates to their managers being distracted by events at the firm and by the need to manage heavy redemptions,” Macey said.
Some advisors started encouraging investors earlier this year to diversify away from Pimco, after the first signals of management upheaval emerged. In January, its former chief executive officer, Mohamed El-Erian, resigned after clashing with Gross over management of the firm.
Chris Karam, chief investment officer at Sheridan Road Financial, a Northbrook, Illinois-based firm advising on more than $11 billion of assets, said he has been turning to strategies run by JPMorgan, Prudential Financial Inc. and Western Asset.
“We began to incorporate different managers a couple years ago and accelerated that process this year after the news in January,” Karam said.