At a BlackRock event last week in New York, fund manager Rick Rieder told about 100 advisers that he expects interest rates to remain low as aging Baby Boomers seek the stability of fixed-income investments. The talk was enough to persuade Larry Glazer to shift even more client money from Pimco to Rieder’s BlackRock fund.
Bill Gross’ departure in September from Pacific Investment Management Co., the firm he was synonymous with for more than 40 years, has triggered unprecedented withdrawals from the largest fund he managed, Pimco Total Return. (PTTRX) One of the beneficiaries has been Rieder’s Total Return, the top performer in its peer group. The BlackRock Inc. fund collected more than $1 billion in assets in October, the most since 2007.
“Talk about great timing,” said Glazer, a managing partner at Boston-based Mayflower Advisors LLC, who has moved some of its almost $2 billion in assets from Pimco to BlackRock. “They are performing very well in an environment where money is in motion and the scale of what’s in motion is really significant.”
Chief Executive Officer Laurence D. Fink hired Rieder in 2009 as BlackRock’s (BLK) actively managed bond unit languished while Pimco’s flourished. Rieder, a 21-year Lehman Brothers Holdings Inc. veteran, took over as chief investment officer, overseeing all active bond strategies, the following year. He said he’s boosted returns in his Total Return fund by flipping big pieces of his positions, such as this year’s shift into more mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac as declining originations suppresses supply.
No. 1 Performer
Rieder, who runs the $4.1 billion fund with Bob Miller, has delivered 7 percent over the past year, according to data compiled by Bloomberg. That performance makes it No. 1 out of 41 bond funds that invest about half of their $500 million or more in assets in mortgages. The $1.9 billion Putnam Income Fund (PINCX) returned 5.7 percent, making it the second best performer. Once the largest mutual fund in the world, the $171 billion Pimco Total Return fund returned 3.6 percent over the same time period.
“There’s no home run opportunity in fixed income and nothing looks extremely cheap,” said Rieder, 53, who is based in New York. “The way we’ve been able to generate returns is by expanding the toolkit and being more nimble and tactical.”
Since Gross announced his departure on Sept. 26 from Pimco, Mayflower’s Glazer said he’s been inundated with marketing materials from mutual-fund companies, including handouts on the street and in line at the deli.
Investors pulled $27.5 billion from the Pimco fund in October, the firm said. Half of the redemptions occurred in the first five trading days last month and they then “slowed sharply,” Newport Beach, California-based Pimco said in a statement on Nov. 4.
A unit of Prudential Financial Inc. dropped Pimco as manager of a $6.2 billion total return strategy, replacing it with Rieder and Miller and managers from Loomis Sayles & Co., according to a regulatory filing last month. TD Ameritrade Holding Corp. also decided to shift about $600 million it manages for investors from Pimco to BlackRock Total Return.
“There’s a rush for assets now that people are reconsidering their allocations to Pimco,” said Sumit Desai, a fixed-income analyst at Morningstar Inc. in Chicago. “There aren’t that many on the institutional side with fixed-income operations big enough to give those investors confidence. BlackRock is one of them.”
The BlackRock fund’s strong performance didn’t prevent withdrawals in almost every month this year until September, when it attracted $98 million, and last month, when it pulled in more than $1 billion, according to estimates from research firm Morningstar. DoubleLine Capital LP and Vanguard Group Inc. have also profited from Pimco’s instability, attracting their highest deposits for the year last month.
Rieder and Miller made the right calls on how the Federal Reserve’s tapering of its bond buying program would affect the mortgage market. In the summer of 2013, the fund maintained a lower allocation of agency MBS relative to its benchmark, the Barclays U.S. Aggregate Index, after the Fed’s announcement on stimulus reduction spurred volatility in the market.