Treasuries maturing in five years returned 2.8 percent in 2014 through Dec. 30, compared with gains of about 11 percent for 10-year notes and 29 percent for 30-year bonds, Bank of America Merrill Lynch Index data show.

Rate Exposure

The fund has maintained lower interest-rate risk than its peers. As yields on 10-year U.S. government bonds declined about 85 basis points in 2014, “by having less interest rate exposure, they didn’t benefit as much,” Todd Rosenbluth, director of mutual-fund research for S&P Capital IQ in New York, said in a telephone interview. “More exposure to Treasuries would have helped, given how well Treasuries have done.”

Performance also suffered from an allocation to TIPS, or Treasury Inflation Protected Securities. TIPS returned 4.2 percent in 2014 through Dec. 30, compared with 5.9 percent for the broader Treasury market, according to Bank of America Merrill Lynch index data.

Bond traders have lowered their inflation expectations as oil prices tumbled and the dollar climbed, making it cheaper for U.S. consumers to purchase goods from abroad. A measure of the outlook for annual inflation over the 10-year period derived from yields on TIPS, known as the break-even rate, fell to 1.68 percentage points from 2.31 percentage points in January.

TIPS ‘Great’

Gross still likes TIPS, telling CNBC last month that the securities “look great” as the Federal Reserve seeks 2 percent inflation. “You can buy a 10-year TIP with inflation expectations of 1.5 percent.”

Facing record redemptions, Pimco has sold the fund’s most liquid, easily tradable securities. Total Return reduced the amount held in a money-market account, and cut holdings of securities issued by government sponsored enterprises such as Fannie Mae and Freddie Mac by 22 percent to $31 billion at the end of September from June 30, according to a report posted on the fund’s website.

The trading left the fund with a slightly higher percentage of holdings in less liquid assets, such as corporate bonds, bank loans and asset-backed debt.

Weathering Withdrawals

Pimco Total Return, the world’s biggest mutual fund until October 2013, had more than doubled from $132 billion at the end of 2008, after weathering the financial crisis with returns that beat 82 percent of rivals.

The fund ballooned to $293 billion in April 2013, before the Fed hinted it would unwind stimulus measures, sparking redemptions and unsteady performance. In 2013, clients pulled a record $41.1 billion, according to estimates from Morningstar.

After Gross’s departure, they yanked a record $60.5 billion in September, October and November, according to Pimco.

The firm can weather withdrawals from institutional and retail clients of as much as $350 billion without hurting performance, according to Morningstar.

Gross, who co-founded Pimco in 1971 and built it into a $1.87 trillion money manager, left after deputies including now- group Chief Investment Officer Daniel Ivascyn said they would quit and management debated his ouster, according to people familiar with the matter. He abruptly resigned to run an unconstrained fund at money manager Janus Capital Group Inc.

Usual Business

The Janus Global Unconstrained Bond Fund had grown from $13 million before Gross took over to $1.2 billion through Nov. 28, according to data compiled by Bloomberg. It’s outperformed 59 percent of peers in the past three months, according to data from Morningstar.