Bond specialist Pimco – led by its huge GIS Income Fund – pulled in €102.3bn between 2007 to 2017, more than double the €49.6bn fixed income inflows attracted by Blackrock, according to Morningstar data.
Over the same period, JP Morgan attracted €33.1bn, Eurizon €24.9bn, and Vanguard €24.2bn, among the top five investment groups with fixed income funds domiciled in either Luxembourg or Ireland. These top sector inflows by the fund houses were also the largest in comparison to all funds in all Morningstar categories, not just fixed income.
For Pimco, its GIS (Global Investors Series) Income Fund dominated inflows, attracting €59.3bn over the decade, followed by GIS Global Investment Grade Credit Fund (€12.4bn), GIS Pimco Capital Securities Fund (€6.2bn), GIS Diversified Income Fund (€5.2bn), and GIS Global Bond Fund (€3.4bn).
The GIS Income Fund has returned 9.1% annualised over the last 10 years to June 2017, compared with 4.7% for its benchmark, and drew in almost $15bn (€12.8bn) of flows in the US in 2017.
The GIS Income Fund has had an Oeic-complaint European version since 2012.
Pimco’s inflows need to be put in context. During 2014, Pimco fixed income funds had the largest outflows of all fund houses at €20.4bn. (It was the second largest outflow over the last decade with the highest outflows being Nomura equity funds at €24.1bn in 2011.)
Individual Pimco fixed income funds with the largest outflows over the last decade were GIS Euro Bond Fund at €1.9bn and GIS Total Return Bond Fund at €1.6bn.
In September 2014, Pimco’s co-founder and dubbed “legendary bond investor” Bill Gross left the firm to join Janus Henderson (then Janus Capital) after 18 consecutive months of outflows from its flagship fund – GIS Total Return Bond Fund.
The GIS Total Return Bond Fund has had consistent outflows since 2013 and last year experienced €271m in outflows – its best result since 2013. The largest outflow was in 2013 at €9.5bn followed by 2014, when Gross left, at €7.8bn.
However, in April 2018 Morningstar upgraded the fund’s rating to silver from bronze.
Morningstar associate director for fixed income research in Europe, Mara Dobrescu, told Expert Investor that prior to Gross’ departure the fund was rated silver but the firm had downgraded the rating after Gross left as investors were pulling out of the fund at a fast pace and they had concerns over changes in the business and its ability to retain talent.
“But what we’ve seen since 2014 is that outflows have slowed and ultimately stabilised and there have been very few team departures since Gross left,” Dobrescu said.
She noted the three leaders that took over the fund – Scott Mather, Mark Kiesel, and Mihir Worah, were strong, stable, and continued to benefit from Pimco’s resources.
According to FE Analytics data, over the 10 years to 30 June 2018, the GIS Total Return Bond Fund has returned 105.82%, compared to Bloomberg Barclays US Aggregate benchmark at 94.5%.
In the six months after Gross left the fund’s performance increased by 22.4%, and 18.7% since his departure.
Pimco GIS Total Return Bond Fund performance v sector 10 years to 30 June 2018
Source: FE Analytics
Dobrescu noted that while the fund had experienced some hiccups in terms of performance during 2015 to 2016, after the team misread the Fed’s response to the global market shift, in relative terms compared to the category the fund performed quite well.
In 2017 the fund performed better than close to 80% of its competition thanks to the team’s US interest rate call, position for a flatter yield curve, nonagency mortgages, and security selection in financials, she added.
“As we’re seeing all of these various sources of alpha, stability in the ranks, these have enabled us to return to our initial level of conviction so we brought the rating up to silver,” Dobrescu said.
However, Dobrescu said the fund’s US vehicle was rated gold because the European version came with a higher price tag.
High price tag
“Given the huge outflows of the fund and economies of scale that Pimco is able to generate they should be about to share these economies of scale with a form of lower fees for investors in Europe. The price tag is disappointing,” she said.
Dobrescu said that the firm had not shared as to why the European vehicle had been priced much higher than its US counterpart.
Largest fund available for sale in Europe
Pimco’s top fixed income fund performer, GIS Income Fund, recorded €41.5bn in inflows last year – the highest amount of inflows over all Morningstar categories for funds domiciled in either Luxembourg or Ireland over the past decade.
Pimco GIS Income fund v benchmark performance since inception
Source: FE Analytics
Over the past 10 years to 30 June 2018, the fund has returned 50.1% more than doubling its Bloomberg Barclays US Aggregate benchmark which returned 21.4%, according to FE Analytics.
Dobrescu said this was the largest fund available for sale in Europe and had been growing at an “astonishing rate both in the European domiciled vehicle and the US version of the fund – Pimco Income”.
“Investors have been drawn to the fund’s promise of delivering a steady stream of income, and it has delivered on that promise over the years,” she said.
However, Dobrescu noted that the rise in assets was not without its challenges.
The fund is rated silver as Morningstar is confident that the fund has the ability to beat its peers and benchmark index.
“But we are keeping a very close eye on the inflows and uncontrolled asset growth that could under some circumstances make the fund less nimble than it used to be,” Dobrescu said.
“This is something that we’re aware of but having said that we feel the team behind the fund make very effective use of human and analytical resources to find value across the fixed income spectrum.”
She said investors were worried about the fact that a significant portfolio of the fund’s return had been from non-agency residential mortgages that was relatively less liquid. While the fund had grown, that particular universe had shrunk.
The fund has reduced its allocation towards the sector and have been able to find value in other opportunities, Dobrescu said.
“Pimco has done a good job at weathering the storm after Gross’ departure and we’re happy with the stability of the investment team and consistency of performance achieved. The biggest negative are the fees charged to investors in Europe and this has not changed over the past few years,” she added.