Investors Return to Bond Market, but Not to PIMCO: Morningstar

Meanwhile, Vanguard dominates inflows for both March and the first quarter

Investors added nearly $40 billion to long-term U.S.-domiciled mutual funds in March. Investors added nearly $40 billion to long-term U.S.-domiciled mutual funds in March.

The latest fund flow figures from Morningstar show that investors added close to $40 billion to long-term U.S.-domiciled mutual funds in March. This movement included “strong flows” to developed international markets as well as “a rebound” in flows to intermediate-term bond funds.

“Core intermediate-term bond funds attracted $4.3 billion in inflows, the first monthly inflow for the category in 11 months and the strongest since January 2013,” explained Michael Rawson, CFA, in a study released Monday.

“With the U.S. equity market appearing fully valued, investors may be taking the opportunity to rebalance into bonds,” Rawson said.

But fixed income giant PIMCO continued to see outflows: $7.4 billion moved out of its funds in March, while $15.5 billion was withdrawn by investors in the first quarter, Morningstar reports.  

PIMCO’s flagship Total Return Fund (PTTRX), for instance, experienced $3.1 billion in outflows in March. Other intermediate-term bond funds had $7.4 billion of inflows during the month.

PIMCO Picture

One factor influencing PIMCO’s shift in popularity is Morningstar’s recently lowering of PIMCO’s overall fund-family rating — or Parent Pillar score — to neutral from positive; the fund group, though, has reaffirmed PIMCO Total Return’s Gold rating. (Other factors include the departure of then-CEO Mohamed El-Erian in January, and emotional discussions about it by co-founder Bill Gross.)

“Given PIMCO’s fixed-income focus, it came as no surprise that the firm faced large outflows in 2013 as interest rates rose,” noted Rawson. Still, PIMCO kept losing assets in the first quarter of 2014, when other mutual fund firms saw $141 billion in inflows.

“For example, the annualized first-quarter organic growth rate for PIMCO Total Return was negative 13%,” he added. Though the overall category contracted 1% in the first quarter, the intermediate-term bond category would have had an inflow if the $232 billion PIMCO Total Return Fund had been excluded.

Other asset losers in early 2014 are the PIMCO Unconstrained Bond (PFIUX), PIMCO EM Fundamental Index-Plus AR Strategy (PEFIX) and PIMCO International Fundamental Index-Plus AR Strategy (PTSIX). The PIMCO Income Fund (PIMIX), though, has experienced stronger inflows than its category.

Two funds recently launched by the group received inflows “that likely corresponded to the outflows from PEFIX and PTSIX,” according to Morningstar: the PIMCO EMG International Low Volatility RAFI-Plus AR (PLVLX) and PIMCO International Low Volatility RAFI-Plus AR (PLVTX), which drew $2.4 billion and $1.9 billion, respectively.

There’s also mixed news for the PIMCO All Asset All Authority Fund, which averaged $544 million of inflows per month for the trailing three years through 2013. In Q1’14, the fund had monthly outflows of $865 million on average.

Equity Movement  

The $2.8 billion inflow into U.S. equity mutual funds in March didn’t really explain investor sentiment for the period, Rawson says. During the month, Fidelity moved some $6.5 billion from equity mutual funds to collective investment trusts.

“Adding that transfer back would result in a $9.3 billion inflow for U.S equity funds,” he noted. “In the trailing five months through February 2014, U.S. equity mutual fund inflows averaged $8.2 billion, so last month’s adjusted inflow was in line with that average.”

The three Fidelity funds that had transfers to CITs are the Fidelity Contra Fund (FCNKX), Fidelity Growth Company Fund (FGCKX) and Fidelity Low-Priced Stock Fund (FLPKX).

As for international equity funds, foreign large-blend experienced the greatest inflow, at $6.6 billion. The Vanguard Total International Stock Index Fund (VTSAX) topped the category, with inflows of $1.8 billion, followed by the Dodge & Cox International Stock Fund (DODFX) with $834 million and the Oppenheimer International Growth Fund (OIGAX) with $720 million.

Diversified emerging-markets funds, which had outflows in February, attracted $1.1 billion in March. The Thornburg Developing World Fund (THDAX), for instance, attracted close to $200 million.

In the alternatives category, the Gotham Absolute Return Fund (GARIX) and BlackRock Global Long/Short Equity (BDMIX) now top $1 billion of assets, after being launched in late 2012.

“If we add back the transfer of Fidelity fund assets to Fidelity collective investment trusts, PIMCO was the only fund provider among the top 10 to experience net outflows during the first quarter,” Rawson said.

Fund Families

The top three fund families, Vanguard, Fidelity and American Funds, remain in the dominant positions as of March 31. There market shares are 18%, 11% and 10% respectively.

With some $2 trillion in fund assets, Vanguard had inflows of $13.8 billion in March and $35.5 billion in the first quarter.

Fidelity has about $1.2 trillion in fund assets overall. It had outflows of $1.4 billion in March and $3.7 million in the first quarter; again, during the past month, Fidelity transferred some $6.5 billion from funds to collective investment trusts.

American Funds had inflows of nearly $900 million in March and close to $1 billion for the quarter. Its overall fund asset base is $1.1 trillion.

Vanguard’s inflows of $35.5 billion put it at the top of the list for the quarter. JPMorgan drew about $8 billion during the period, followed by Dimensional Fund Advisors with $7.7 billion and T. Rowe Price with $7.5 billion.

In March, when Vanguard had nearly $14 billion of inflows, JPMorgan experienced $2.4 billion of inflows, and DFA some $2.2 billion.

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