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By Christine Benz and Timothy Strauts | 12-11-2014 04:00 PM

Penchant for Passive Continues in 2014

Flows into passive U.S. equity funds of all stripes have been strong, as investors continue to show a clear preference toward lower-fee options, says Morningstar's Tim Strauts.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Following Bill Gross' departure from PIMCO in September, assets leaving PIMCO Total Return (PTTRX) appear to be finally slowing down. Joining me to discuss this and other news in realm of asset inflows and outflows is Tim Strauts. He's a senior markets research analyst for Morningstar. Tim, thank you so much for being here.

Tim Strauts: Thanks for having me.

Benz: Tim, I know that you and the team have been monitoring the situation at PIMCO Total Return. We've really been looking at it to see whether it will affect our view on the fund. You've been looking at whether redemptions are affecting the fund's positioning. Let's talk about the fact that redemptions from PIMCO Total Return do appear to have slowed down a bit.

Strauts: Well, for one, PIMCO Total Return actually had a very good month last month. They were up a little over 1%, which was good [enough to place the fund in the] top one percentile for the category, so that sure has helped. But they did lose $9.7 billion in assets in the fund, which is an incredible amount but much smaller than the $32 billion they lost last month. So, flows seem to be getting better. But over the last three months, they have lost over $60 billion in just that fund. As a firm, PIMCO is also shedding assets besides Total Return. Last month, the firm lost $12.8 billion. And over the last three months, they have lost close to $89 billion.

Benz: Let's look at where those assets are going. First, are they going to Bill Gross' new charge at Janus?

Strauts: Well, Bill Gross had a good month for flows but not in comparison to the PIMCO flows. They got about $800 million in new assets into his Unconstrained Bond Fund (JUCIX) at Janus, which is very good. But considering that almost $10 billion left Total Return, he is obviously not the main beneficiary of the new assets.

Benz: So, let's talk about which funds have been the biggest winners as Gross has departed PIMCO Total Return. Where are investors putting their money if they are pulling it from Total Return?

Strauts: Two funds we are seeing get the most flows are Metropolitan West Total Return Bond (MWTIX) and Dodge & Cox Income (DODIX) on the active side. And it wasn't as much this month, but we have seen Vanguard Total Bond Market (VBMFX) on the passive side also get a lot of the flows.

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