Pimco Total Return Fund rises for 2nd month after patchy summer


By Sam Forgione

NEW YORK, Nov 1 (Reuters) - Bill Gross's Pimco Total ReturnFund, the world's largest mutual fund, notched its secondstraight month of gains in October after a rocky summer period,preliminary data from Morningstar showed on Friday.

The 0.93 percent monthly rise lagged a stellar performancefor the $250-billion fund in September, when it gained 1.8percent, its best month since January 2012. But it comes afterthree months of losses over the summer period as rising marketinterest rates ate into performance.

Starting in May, fears of a pullback in the FederalReserve's $85 billion monthly bond-buying program caused a spikein rates that cut into bond funds' returns. The Pimco TotalReturn Fund was no exception and sustained losses in May, June,and August.

Last month's gain was partly due to expectations that theFed would keep its monthly bond-buying program steady into 2014,said Todd Rosenbluth, director of mutual fund research at S&PCapital IQ.

But gains eased compared to September because the shift tobonds last month was less dramatic, Rosenbluth said.

On Sept. 18, the Fed surprised investors by failing to scaleback its bond purchases, leading the yield on the benchmark10-year U.S. Treasury note to plunge 17 basis points to 2.69percent on the day of the decision. Bond yields move inverselyto their prices.

Last month, however, investors largely expected the Fed tokeep its bond-buying program steady at its October meeting -bets which were confirmed on Wednesday. The expectations ledbonds to rally less than in September, with the yield on the10-year Treasury ending the month at 2.54 percent after touchingthree-month lows of 2.47 percent on Oct. 23.

The benchmark Barclays U.S. Aggregate bond index, meanwhile,rose 0.81 percent in October after jumping 0.95 percent inSeptember.

The fund had 35 percent of its assets invested in U.S.government-related securities as of Sept. 30, according to thePimco website, and Rosenbluth said hefty Treasuries exposurehelped it remain positive.

The performance of Pimco's funds is important because thefirm manages roughly $1.97 trillion and is one of the world'slargest bond managers. Gross and co-chief investment officer andchief executive Mohamed El-Erian's views also influence otherinvestors because of the firm's size in the marketplace.

The Pimco flagship is still down 0.97 percent for the yearand is ahead of only 46 percent of its peers, Morningstar datashowed. Investors pulled $31.5 billion out of the fund in thefive months between May and September on lagging performance.

The Pimco Total Return Exchange-Traded Fund, anactively-managed ETF designed to mimic the strategy of themutual fund, rose 0.85 percent last month. That performance wasabove 77 percent of peers, the Morningstar data showed.

The positive return of the ETF, which was launched inFebruary 2012 and with $3.8 billion in assets, also eased fromSeptember's 1.7 percent gain. That marked its best performancesince July 2012. The ETF is up 0.02 percent for the year,besting 90 percent of peers, according to Morningstar.

The Newport Beach, California-based Pacific InvestmentManagement Co is a unit of European financial services companyAllianz SE.

Jeffrey Gundlach's $35-billion DoubleLine Total Return BondFund, a competitor to the Pimco fund, rose 0.64percent for the month, beating 14 percent of peers, theMorningstar data showed.

That monthly return was also lower than a gain of 1.2percent in September, which was its best monthly performancesince August 2012, according to the data. The fund is up 0.94percent this year, beating 92 percent of peers, according toMorningstar.

The fund is the flagship of the Los Angeles-based DoubleLineCapital, which had over $56 billion in assets as of June 30according to the company's website. Gundlach is chief executiveand chief investment officer of DoubleLine.

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