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Pimco Total Return loses title as world's largest mutual fund

The headquarters of investment firm PIMCO is shown in this photo taken in Newport Beach, California January 26, 2012. REUTERS/Lori Shepler

By Sam Forgione

NEW YORK (Reuters) - Bill Gross's Pimco Total Return Fund had outflows of $4.4 billion in October, stripping it of its status as the world's largest mutual fund on lagging performance this year, data from Morningstar showed Monday.

The outflows marked the sixth straight month of withdrawals from the fund, and lowered its assets to $248 billion, according to Morningstar data. For the year, the Pimco Total Return Fund has had outflows of about $33.2 billion. The fund, which is managed by Pimco co-founder and co-chief investment officer Bill Gross, is still the world's largest bond fund, Morningstar said.

The Vanguard Total Stock Market Index now holds the title of world's largest mutual fund with $251.1 billion, according to Morningstar.

The status of Gross's fund is important because Pimco manages roughly $1.97 trillion and is one of the world's largest bond managers. Gross's, and co-chief investment officer and chief executive Mohamed El-Erian's, views on global credit also influence other investors. Newport Beach, California-based Pacific Investment Management Co is a unit of European financial services company Allianz SE.

Investors have continued to pull cash out of Gross's flagship fund on fears interest rates will spike higher when the Federal Reserve scales back its stimulus, said Eric Jacobson, director of fixed income research at Morningstar.

Starting last May, bond interest rates shot higher on concerns that the Fed would begin reducing its $85 billion in monthly bond purchases. The yield on the benchmark 10-year U.S. Treasury note rose above 3 percent in September from 1.62 percent in early May.

Morningstar's Jacobson, who has been covering Pimco for over a decade, said that investors have likely withdrawn cash from Gross's fund this year given the fund's stumbles in response to those higher interest rates.

"Nobody's always going to be right on interest rate calls, but because he has been known for getting them right for a long time, it's a 'live-by-the-sword, die-by-the-sword' kind of problem," said Jacobson.

The Pimco Total Return Fund rose 0.93 percent in October, beating 50 percent of peers, according to Morningstar data. That marked its second straight month of gains after the Fed decided to keep its bond-buying steady in September and October, sparking a rally in bond prices.

The fund stumbled in May, June, and August, however, and for the year it is down 1.23 percent, beating 45 percent of peers.

Pimco is not alone in experiencing outflows. Bond funds worldwide had outflows of roughly $9.2 billion in October, according to data from Bank of America Merrill Lynch and EPFR Global.

The Pimco Total Return Exchange-Traded Fund, an actively managed ETF designed to mimic the strategy of the flagship mutual fund, had $117 million in outflows last month, also marking its sixth straight month of outflows.

The ETF, which now has roughly $3.8 billion, rose 0.85 percent in October, beating 77 percent of peers, according to Morningstar data. The ETF, which launched in February 2012, is doing better for the year and is down 0.54 percent, beating 90 percent of its peers, according to Morningstar.

Investors pulled $4.7 billion from all of Pimco's U.S. open-ended mutual funds last month, Morningstar said, marking the fifth straight month of withdrawals from the firm.

Jeffrey Gundlach's DoubleLine Total Return Bond Fund, had $1.1 billion in outflows in October, marking its fifth straight month of outflows and bringing this year's outflows to $3.1 billion, according to Morningstar.

The outflows came as the fund rose 0.64 percent last month, ahead of just 14 percent of peers. For the year, the $34-billion fund is outperforming and is up 0.45 percent, beating 90 percent of its peers. DoubleLine had $1 billion in overall outflows from its U.S. open-end mutual funds in October, also marking the fifth straight month of outflows from the firm, according to Morningstar.

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

"The DoubleLine Total Return Bond Fund continues to share in the net outflows that are being experienced by many intermediate-term bond funds," said Loren Fleckenstein, analyst at DoubleLine.

"We also see this phenomenon mirrored in net flows into the DoubleLine Low Duration Bond Fund because of fear of rising interest rates."

The DoubleLine Low Duration Bond fund attracted $242.4 million in new cash in October, Morningstar data showed.

(Reporting by Sam Forgione; Editing by Chizu Nomiyama, James Dalgleish and Nick Zieminski)