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By Jeremy Glaser and Timothy Strauts | 11-05-2014 11:00 AM

PIMCO Total Return Outflows Slowing, But Still Substantial

PIMCO Total Return is still losing assets on a daily basis, but at a much lower rate than in the immediate wake of Bill Gross’ departure from the firm.

Jeremy Glaser: For Morningstar, I'm Jeremy Glaser. One of the biggest questions in the wake of Bill Gross' departure for PIMCO is what flows would like at the firm. We're joined today by Tim Strauts. He is a senior markets research analyst, and he is going to give us an update on those flows.

Tim, thanks for joining me today.

Tim Strauts: Glad to be here.

Glaser: Let's look at October. We crunched the numbers. How much money has left Total Return (PTTRX) in particular over the last month?

Strauts: Morningstar's estimate is a negative $32.3 billion outflow, which is the largest outflow we've ever seen out of the mutual fund.

Glaser: Now, that's significantly higher than PIMCO's own estimate. What's responsible for that difference?

Strauts: PIMCO reported a negative $27.5 billion. The difference is that, on Sept. 30, PIMCO included the Sept. 30 trade orders in their September numbers, but those trades don't actually settle in the fund until October. So, there's about a $5 billion difference between the two. And if you compare the two months, September and October together, we're pretty much right on with a negative $50.1 billion over the last two months.

Glaser: So, that's a big outflow there. Do we have a sense of whether this is an accelerating amount of people pulling more and more money out, or have the outflows tapered somewhat?

Strauts: Well, in an unusual move, PIMCO actually gave us some data on that. PIMCO really only gives us monthly data. But I think to try to assuage investors' concerns, on their website they actually published a chart of the daily flows in PIMCO Total Return over the last two months. And in that chart, what you can see is that, on the first day after Bill Gross resigned, you saw a very large outflow of over $7 billion. And then since then, the flows have trickled down from there. They're still losing substantial assets, though, averaging $500 million to less than $1 billion a day in some cases over just the last week or so. The flows are definitely getting less bad, but they're still substantial.

Glaser: Are the outflows concentrated in Total Return and funds that Bill Gross actually managed, or is the entire firm really seeing some pressure?

Strauts: I would say the entire firm is seeing some pressure. Obviously, the Total Return fund is the largest fund, so its dollar value is the largest. But PIMCO, as a firm, lost approximately $49 billion just last month. So, if you look at the number of funds in outflows, 74% of PIMCO funds were in outflows last month.

Glaser: I know we talked about this last month briefly, but do we have a sense yet of who is the beneficiary of these outflows? Where is this money going?

Strauts: It's still a little uncertain because we still don't have complete data on all mutual fund firms for October. The two funds we do have the data on are Metropolitan West Total Return (MWTRX), they had a $6.7 billion inflow--which is their largest inflow in history--and DoubleLine Total Return (DLTNX), which added also a large $2 billion in assets.

Glaser: With all this money coming out, how is PIMCO handling the outflows? Have we seen any negative impacts on performance or signs that they don't have the liquidity?

Strauts: Well, with a small sample set, last month, the fund returned 0.8%, which was right around the 50th percentile for the category. So, they're performing right about average right now. We'll have to see in the months ahead. But so far, it seems like they're doing OK performance-wise.

Glaser: Tim, I appreciate the update today.

Strauts: Thank you for having me.

Glaser: For Morningstar, I'm Jeremy Glaser. Thanks for watching.

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