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By Jeremy Glaser and Eric Jacobson | 03-19-2014 12:00 PM

Morningstar Reaffirms Gold Rating on PIMCO Total Return

Taking all of the plusses and minuses together, PIMCO Total Return remains a Gold-rated fund resting on a very strong foundation, says Morningstar's Eric Jacobson.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. Morningstar recently lowered its Stewardship Grade and Parent Pillar rating for PIMCO, but is affirming its Gold [Morningstar Analyst Rating] on PIMCO's flagship Total Return fund. I'm here today with Eric Jacobson, a senior analyst on our fund team, to explain these changes.

Eric, thanks for joining me today.

Eric Jacobson: Great to talk to you, Jeremy.

Glaser: Can you help us understand why Morningstar downgraded that Stewardship Grade and that Parent Pillar for PIMCO? What were some of the factors behind that decision?

Jacobson: Well there were a few of them that kind of melded together. One is what I just would call sort of heightened level of uncertainty in this new era, after [former CEO] Mohamed El-Erian has left. Around the questions on whether the latest senior staffing transitions will ultimately be beneficial to investors, I think, as individuals, they are some terrific managers and great intellects. But when you mix it altogether, it leads to some uncertainty.

And then I would say that, there is also this issue of whether the recent and senior-level departures indicate some sort of a persistent side effect of the pressure-cooker culture that we talked about before. We know anecdotally that that was the case in a couple of places. But it is something that we think is certainly something that we want to keep an eye on and whether or not that develops in the future, but it's certainly a concern.

We also want to keep looking at whether that culture will improve or turn out to be a problem for some of these rising stars, the deputy CIOs and people on the investment committee. There is a lot of concern about that, now that they are sort of stepping up into very, very high-visibility roles. And frankly [we want to look at] even whether the prospect of tougher bond markets or more potential performance stumbles could actually itself cause that sort of pressure-cooker temperature to rise even further. And we have seen that in other firms before. And so it's something that we are always kind of watching out for.

So when you roll all those things together it's really just a big question of uncertainty, and it was enough, as I said, to push down the overall Stewardship and Parent ratings.

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