Pimco Total Return's growth reversed late last year amid signs that the 30-year bond market rally was coming to an end, a possibility that Gross himself raised in an Oct. 27 commentary on Pimco's Web site. After taking in a net of $32 billion from investors during the first 10 months of 2010, the fund recorded net redemptions of $9.45 billion between November and January, according to Morningstar. November marked the first time in two years that withdrawals exceeded share purchases.
Flagship Fund
Gross set up two other versions of his flagship fund in 1991. Pimco Total Return II is barred from investing in high- yield bonds while Pimco Total Return III is a socially conscious fund that avoids investing in industries such as tobacco, gaming and spirits. Apart from those limitations, their terms are identical to those of the initial Total Return Fund, including the ability to make unlimited investments in derivatives, subject to applicable securities laws and any caveats in their governing documents.
The $3.3 billion Pimco Total Return II produced average annual gains of 7.9% during the past five years, compared with 8.3% for the original Pimco Total Return, according to data compiled by Bloomberg. Its management fees are 0.50% of assets, compared with 0.46% for institutional shares of the larger fund.
Pimco Total Return IV, the latest edition of Gross's fund, will hold only investment-grade securities, can't have more than 15% of total assets invested in securities denominated in foreign currencies, and will under normal circumstances limit its foreign currency risk to 5% of total assets, the filing shows. The comparable ceilings for the existing Pimco Total Return are 10% of total assets in high-yield securities, 30% in foreign-denominated debt, and a 20% ceiling on overall currency exposure.
No Options
The new fund may not borrow to create leverage, though it can take out temporary loans equaling as much as 10% of assets to meet redemptions or for emergency purposes. In contrast, the existing Pimco Total Return may borrow money "to the extent permitted under the 1940 Act," generally defined as 33% of net assets.
While Pimco Total Return may invest "without limitation" in derivatives, the new version of the fund will "seek to limit" exposure to interest rate swaps to 10% of total assets and will cap its credit default swaps at 5% of total assets. The new fund "may not invest in options," according to the SEC filing, nor can it engage in reverse repurchase agreements.