If you want a leading indicator of the effects interest rate risk, look no further than PIMCO. The bond fund behemoth has thoroughly enjoyed the past two decades of low rates; enough to amass $1.8 trillion in AUM as of March 31.
But it has been a rough few months for the firm since, and Ben Bernanke’s awkward announcement of the end to the Treasury’s bond buying program hasn’t helped. Founder Bill Gross saw almost $10 billion flee the firm’s largest fund, PIMCO Total Return (PTRAX), in the month of June alone, the most on record.
The New York Times Dealbook blog reports three-quarters of the company’s exchange-traded funds have experienced outflows during June, with two of them losing nearly 40% of their holdings. At the same time, nearly 70% of PIMCO’s mutual funds and ETFs have been underperforming their benchmarks.
Adding insult to injury, Gross’ heavy bet on Treasury inflation-protected securities was negatively affected as inflation fears tempered, something smaller rival Jeff Gundlach was able to avoid.
“Unless inflation goes higher, then all you have with TIPS is interest rate risk, just like every other Treasury,” Gundlach, portfolio manager of the DoubleLine (DBLTX) Total Return Bond Fund, told Bloomberg on Wednesday. “It’s an asset class that is exposed to investor surprise and disappointment.”
But Gross has been in this position before, if not to this extent. A premature bet against Treasuries caused his flagship to trail peers in 2011, prompting Gross to apologize to clients, the news service notes.
Known for his flowery prose and unusual metaphors in his popular monthly outlooks, he therefore might quote Mark Twain, in that “reports of my death have been greatly exaggerated.”
Nonetheless, the latest news comes on the heels of record bond mutual funds and outflows overall for the month of June.
Investment research firm TrimTabs reported that U.S.-listed bond mutual funds and exchange-traded funds lost $61.7 billion in June.
This outflow far exceeded the previous record monthly outflow of $41.8 billion at the height of the financial crisis in October 2008.
TrimTabs attributed the selling to a combination of steadily rising yields and hints from global central bankers that monetary stimulus may be scaled back in the future.
Check out PIMCO’s Gross: Don’t Abandon Ship in Turbulent Market on AdvisorOne.