Morningstar analysts said on Thursday that they have a "cautiously optimistic outlook" for Pimco's future but that money exiting the firm's flagship fund and its new leadership team remain huge concerns.

Outflows since Bill Gross's abrupt departure from Pacific Investment Management Co on September 26 "have been worse than many had expected," Morningstar analysts said in their new report.

The Pimco Total Return Fund alone shed more than an estimated $180 billion in net assets between mid-2013 and May 2015. Total firm assets under management fell approximately 15 percent from $1.88 trillion as of September 2014 to $1.59 trillion as of March 2015.

"We're encouraged at the progress the firm's leaders have made in stabilizing the investment team, fortifying the firm's culture, and continuing to invest in its research effort," the report said. "Yet, the situation is fluid amid continued outflows and an investment team still in the formative stages of jelling and reforging its identity."

Morningstar analysts said Pimco's high profit margins should provide a cushion, and Allianz SE has proven "a supportive parent," but continued outflows could spur cost-cutting and, with it, organizational instability.

David Schawel, vice president and portfolio manager of Square 1 Financial, said the Pimco Total Return Fund, which lost its crown as the biggest bond fund in the world in April, "has been very mediocre.

"For the last few years, Pimco Total Return has looked very much like the Barclays Aggregate, just a little worse," Schawel said. Morningstar said in a follow-up conference call that yield curve bets and shorting of the euro and yen have left the fund "vulnerable" to gyrations.

The $107.3 billion Pimco Total Return, whose negative correlation between the euro has been pronounced since January, is trailing 51 percent of its peers year-to-date.
Not all Pimco funds are under pressure.

In the multi-sector bond category, the $46.2 billion Pimco Income Fund, overseen by Pimco Group CIO Dan Ivascyn, had $1.2 billion of inflows last month and is outperforming 96 percent of its peer category so far this year.

"It's still early to judge how effective the firm's retooled Investment Committee is in Gross' absence, but it's clear that Ivascyn has succeeded in bringing a broader range of voices to the table," Morningstar said. "Ivascyn is placing an emphasis on increasing communication within and across investment teams and making sure that conflicting views are heard."