Vanguard Tops PIMCO Total Return as World’s Largest Bond Fund

PIMCO’s Total Return Fund has lost its title of the world’s largest bond mutual fund to Vanguard after suffering 24 consecutive months of outflows.

According to the Newport Beach, California-based firm’s most recent data, its flagship fund lost $5.6 billion in April, shrinking its total assets down to $110.4 billion.

PIMCO’s fund fell behind rival Vanguard’s Total Bond Market Index fund, which reported $117.3 billion under management as of April 30, according to the firm’s preliminary data.

Vanguard’s spokesperson said the fund has “benefited from a diverse base of long-term shareholders” that are drawn to the fund because it “provides broad diversification to the bond market at a low cost.”

For more stories like this, sign up for the CIO Alert newsletter. 

Clients have pulled more than $110 billion from PIMCO’s fund since its peak of $293 billion two years ago.

In December 2013, after the fund suffered its seventh consecutive months of outflows, then-CIO Bill Gross said the firm had plans to reposition the portfolio to secure its number one spot.

“We have positioned our bond wars portfolio—heavily front-end maturity loaded along with credit, volatility, and curve steepening positions, with the aim of outperforming Vanguard as well as many other active managers,” the bond king said in an investment outlook.

The Total Return Fund hemorrhaged a record $27.5 billion in withdrawals last October, when Gross exited the firm. Outflows peaked the day Gross left, PIMCO said, at an estimated $8 billion.

The fund is now run by CIOs Scott Mather, Mark Kiesel, and Mihir Worah and returned 1.62% net-of-fees for year-to-date through April. Total Return also outperformed its benchmark by 38 basis points, PIMCO said.

Gross now manages a $1.5 billion global unconstrained bond fund for Janus Capital.

It's time for asset managers to stop "conveniently forgetting" to reduce fees and position themselves for weak future returns, according to the bond king.

Bill Gross It’s just a matter of time until the death of the bull market, said former PIMCO chief Bill Gross, and investors must be rational and come to terms with its demise.

Comparing the death of this stage of the market cycle with his own mortality—having just celebrated his 71^st birthday in April—Gross said the unconventional monetary policies that boosted asset prices since the financial crisis are running out.

“Credit-based oxygen is running out,” he said in an investment outlook for Janus Capital. “We are approaching that point now as bond yields, credit spreads, and stock prices have brought financial wealth forward to the point of exhaustion.”

Gross, who currently manages Janus’ $1.5 billion global unconstrained bond fund, said he and other “gurus” like Stanley Druckenmiller, George Soros, Ray Dalio, and Jeremy Grantham are looking to predict the “future financial obituary.”

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

The bond king also advised investors to beware of low asset returns—even “great unrest” caused by bubbles in the markets—and prepare for “a crush of perpetual bull market enthusiasm.”

As well as painting a grim picture, Gross said a rational and successful manager must get used to the idea of negative yields and lower fees going forward.

“The successful portfolio manager will be one that refocuses on the possibility of periodic negative annual returns and miniscule Sharpe ratios and who employs defensive choices that can be mildly levered to exceed cash returns,” he wrote.

In the outlook, Gross also criticized active asset managers “conveniently forgetting” to reduce fees over the last 35 years.

According to the bond guru, managers firmly believe that they deserve to be richer because of their skill or “their introduction of confusing and sometimes destructive quantitative technologies and derivatives” that gave way to the financial crisis.

“I merely have a sense of an ending, a secular bull market ending with a whimper, not a bang,” Gross continued. “But if so, like death, only the timing is in doubt.”