While many had already joined the recent exodus of investors from PIMCO funds, some financial advisors said they could see investors pulling more money from the bond shop following the news this morning that Bill Gross would leave PIMCO after 43 years to join Janus Capital Group. The fifth largest fund family, PIMCO currently has $519 billion in retail assets, according to Morningstar. Other advisors said this clears the deck for PIMCO to make amends to investors and right the ship.
Advisors’ knee-jerk reaction will be to sell PIMCO funds, said Alan Rosenfield, managing director of Harmony Asset Management in Scottsdale, Ariz. “Bill Gross has been the public image of Pimco for some time, with him gone, the immediate reaction is the brains are gone. They will have to prove their depth, which will take time.”
Gross and PIMCO have been hit with negative headlines this year, starting when Mohamed El-Erian stepped down as the firm’s CEO and co-chief investment officer in March. The announcement triggered a wave of stories about El-Erian’s departure and his relationship with Gross.
PIMCO’s Total Return Bond Fund was the world’s largest mutual fund for many years, amassing $18 billion in new assets in 2012, according to Morningstar. But in May 2013, the fund started bleeding assets following poor performance. August marked the 16th straight month of withdrawals, with $3.9 billion in outflows during the month. Year-to-date through Sept. 25, the fund returned 3.59 percent, Morningstar says.
And just this week, reports surfaced of an investigation by the Securities and Exchange Commission into the inflated returns of PIMCO’s Total Return ETF, run by Gross.
Some advisors believe Gross’ move could have lasting negative effects on the firm; some have already started to withdraw assets.
“It is not good for PIMCO by any measure,” said David Maurice, vice president at Carrier, Maurice & Webb Wealth Advisors in Johnson City, Tenn, who has a significant portion of his clients’ bond portfolio in PIMCO. “They will lose market share although it’s too soon to say that we will participate in redemptions driven by this.”
“Any objective advisor would not be fooled by Mr. Gross’s so-called star power,” said Douglas Stone, wealth advisor with SeaCrest Wealth Management in Medford, Ore. “For many of us, the results are what matters and clearly his fund has lacked that for some time now.”
Mark Stys, chief investment officer at WS Wealth Management in Tyson’s Corner, Va., has been pulling out of PIMCO funds over the last two to three years.
“I sit on a board and as a investment committee member overseeing the investment portfolio, I strongly encouraged the consultant to diversify away from the one-third weighting they had in PIMCO Total Return Fund,” said Lynne Kinney, principal at CKW Financial Group in Honolulu. “The allocation was foolish and an inappropriate bet on one fund’s ability to make interest rate/duration calls.”
“We exited PIMCO Total Return over a year ago, and have the other PIMCO funds on our watch list for performance issues or internal management changes, which could impact them,” said Kris Maksimovich, president of Global Wealth Advisors in Dallas.
But Maksimovich and other advisors say his departure will blow over, and ultimately be a positive thing for PIMCO.
“He, to many, is still the ‘bond king,’ and I would imagine some assets will be leaving with him,” he added. “But his staying could have also impacted PIMCO negatively after the very-publicized and vocal ‘disagreements’ between he and El-Erian, his public comments whether understood correctly or not, etc.”
“The first few days will see money outflows from the firm but eventually things will settle down as a new leader comes in,” said Jon Larsen, portfolio manager at Albion Financial Group in Salt Lake City, Utah. “A change in leadership has been needed even if it at first the biggest effect is an increased employee morale.”