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

By Sam Forgione

NEW YORK, Nov 1 (Reuters) - Bill Gross's Pimco Total Return Fund, the world's largest mutual fund, notched its second straight 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 performance for the $250-billion fund in September, when it gained 1.8 percent, its best month since January 2012. But it comes after three months of losses over the summer period as rising market interest rates ate into performance.

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

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

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

On Sept. 18, the Fed surprised investors by failing to scale back its bond purchases, leading the yield on the benchmark 10-year U.S. Treasury note to plunge 17 basis points to 2.69 percent on the day of the decision. Bond yields move inversely to their prices.

Last month, however, investors largely expected the Fed to keep its bond-buying program steady at its October meeting - bets which were confirmed on Wednesday. The expectations led bonds to rally less than in September, with the yield on the 10-year Treasury ending the month at 2.54 percent after touching three-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 in September.

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

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

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

The Pimco Total Return Exchange-Traded Fund, an actively-managed ETF designed to mimic the strategy of the mutual fund, rose 0.85 percent last month. That performance was above 77 percent of peers, the Morningstar data showed.

The positive return of the ETF, which was launched in February 2012 and with $3.8 billion in assets, also eased from September's 1.7 percent gain. That marked its best performance since 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 Investment Management Co is a unit of European financial services company Allianz SE.

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

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

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