BY NATHANIEL POPPER – NYT
Investors pulled a record amount of money from Pimco’s flagship Total Return bond fund in June, a stark indication of how rising interest rates have pushed bonds out of favor.
Outflows at the Total Return fund, the largest mutual fund in the world, were $9.6 billion — the largest monthly outflow since Morningstar began tracking the fund in 1993. The figure is nearly half of the total amount of money that was pulled from bond mutual funds and exchange traded funds, through June 26, according to Lipper.
The size of the outflows underscore the challenges facing Pimco, which has risen to become the fifth-largest money manager in the world as a result of the popularity of its bond mutual funds, and bond mutual funds more broadly.
Since Ben S. Bernanke, the Federal Reservechairman, indicated in May that the Fed may pull back on its bond-buying programs, investors have moved out of bonds, which has driven up interest rates and pushed down the value of existing bonds.
While Pimco’s Total Return fund has a reputation for outperforming a strong bond market, as the market has dropped, Pimco’s fund has done even worse. In the second quarter, the fund dropped 3.7 percent, worse than 95 percent of similar bond funds tracked by Morningstar. The outflows represent nearly 3.4 percent of the fund’s total assets at the beginning of the June, according to Morningstar, leaving the fund with $268 billion under management.
Pimco executives have been vocally defending bond investments broadly, calling the recent swings in the market an overreaction. The firm’s leader, William H. Gross, has taken the unusual step of posting a number of videos shot in his office in which he tries to calm the fears of investors.