--Pimco's Total Return Fund lured $1.36 billion inflow in
June
--Pimco's Flagship Bond Fund took in $5.9 billion inflow in
first half Of 2012
--Year through June flow has outpaced $4.97 billion net outflow
for 2011
By Min Zeng
For bond king Bill Gross, one of his selling points for the
first half of 2012 is a triumphant comeback.
By the end of June, the biggest bond fund he manages has not
only recouped all the net outflow for the calendar year 2011 but
then gained some.
The $260.9 billion Pimco Total Return Fund (PTTRX) at Pacific
Investment Management Co. drew in $1.36 billion of new cash during
June, bringing the tally this year to $5.9 billion through June 30,
according to the latest date provided late Monday afternoon by fund
tracker Morningstar Inc.
The dollar amount for the first half of this year outnumbered
the $4.97 billion net outflow for the whole of 2011. It was the
first calendar-year loss for the fund since its inception in 1987
as Mr. Gross was stung by ill-timed wagers on Treasury bonds.
The turnaround was a reward for Mr. Gross, founder and co-chief
investment officer at Pimco, whose fund has risen back to the top
form after being a laggard in 2011. Winning back investors was a
welcome relief for Mr. Gross, who wrote a letter to his clients
late last year to pledge to improve performance.
The fund has handed investors a return of 5.75% through Friday,
beating the 2.37% on the Barclays Capital US Aggregate Bond Index,
according to data from Morningstar. The fund has beaten 96% of its
rivals so far this year, a sharp reversal from last year, when its
4.16% return trailed nearly 90% of its peers and was below the
7.84% return on the benchmark.
Mr. Gross's portfolio has been heavily concentrated on
high-quality U.S. assets this year, led by mortgage-backed
securities and Treasury bonds. His play it safe posture reflects
the company's worries over the euro zone's debt crisis which has
clouded the global economic outlook.
A flight into Treasury bonds for safety had sent bond prices
surging and pushed bond yields to record low levels. The benchmark
10-year note's yield tumbled to a record low of 1.437% on June 1
and late Monday traded at 1.582%.
Mr. Gross boosted Treasury holdings to 35% in May from 31% in
April, the first increase in four months, according to the latest
data from the company's web site. Mortgage backed securities, the
biggest holding in the fund, was 52% versus 53% in April.
The MBS and Treasury holdings account for a whopping 87% of the
fund, also reflecting Mr. Gross's belief there will be further Fed
stimulus, probably a new bond-buying program, that could bolster
bond prices.
The central bank in late June decided to extend its Operation
Twist stimulus--with which it has been selling shorter-dated notes
to buy longer-dated bonds--through the end of the year. The Fed
said in the statement accompanying its late-June policy meeting
that it is prepared to take further actions should the economy
falter.
While the positions may get hurt if there is no new stimulus
from the Fed, or if the euro-zone situation improves, Mr. Gross has
been doing well so far this year amid the uncertainties over the
euro zone and the U.S. growth outlook.
In his June investment outlook, Mr. Gross acknowledged the
downside risk in holding Treasury bonds, especially at these low
yield levels. Mr. Gross said Treasury bonds are still the "cleanest
of the dirty shirts." But he warns that the glow of this primary
safe-haven market could be tarnished by a darkening U.S. fiscal
outlook if policy makers don't have a credible longer-term plan to
address the deficit.
Write to Min Zeng at min.zeng@dowjones.com