The new year has not been kind to Bill “Bond King” Gross, but he is not alone.
His massive fixed income-focused investment manager Pimco has lagged performance benchmarks, the culture of the firm has come under scrutiny since the departure of CEO Mohamed El-Erian and more than $5 billion has already been pulled by investors in January and February alone.
While Pimco has shed assets both in 2014 and over the last year, the Newport Beach, Calif., firm has plenty of company. Many of the most prominent bond mutual funds have lost billions of dollars in assets over the last year, including those managed by DoubleLine Capital, JPMorgan Chase, American Funds, Vanguard Group and Fidelity Investments, according to data estimates from Morningstar.
Biggest intermediate-term bond fund asset losers
|Fund||Est. Net Flow
($M) YTD (2/28)
|Est. Net Flow
($M) 1Y (2/28)
|PIMCO Total Return
|DoubleLine Total Return
Bond Fund (DBLTX)
|JPMorgan Core Bond
|American Funds Bond
Fund of America Fund (ABNDX)
|Vanguard Total Bond
Market Index Fund (VBMFX)
Income Fund (DPDFX)
|Fidelity Series Investment
Grade Bond Fund (FSIGX)
Bond Index Fund (VBIIX)
|Loomis Sayles Investment
Grade Bond Fund (LIGRX)
|Federated Total Return
Bond Fund (FTRBX)
“It’s been a really rough stretch for traditional bond managers, especially those that don’t have alternative products to soak up the assets that have been coming out of traditional core funds,” said Eric Jacobson, a bond mutual fund expert at Morningstar.
At least one bond manager cautioned not to read too much into asset flows.
“The outflows aren’t necessarily related to the results of the fund; it’s more a matter of investors moving into shorter-term bond funds or moving into equities where they see more opportunity,” said Amy Friend, a spokeswoman for American Funds. “Talking about the flows is only part of a larger story about the broad move from fixed income to equities.”
And at least one fund noted that Morningstar’s fund flow data is not always accurate in the short term as it is an estimate based on performance and distributions as opposed to direct information from the firms, according to DoubleLine analyst Loren Fleckenstein.
All other top 10 one-year asset losers either declined to comment or did not respond to requests for comment.
While assets have left many large bond funds recently, performance in 2014 has often been in line or slightly better than the benchmark gain of 1.38 percent by the Barclays U.S. Aggregate Bond Index through March 28. That’s an improvement on 2013, when most large bond funds lost money; the Morningstar category average was down 1.42 percent.
This year, losing or gaining assets hasn’t matched under- or overperformance.
Jeffrey Gundlach’s DoubleLine Total Return Bond Fund continued to lose assets in the first two months of the year despite gaining 1.58 percent through March 28. Similarly, the Loomis Sayles Investment Grade Bond Fund, managed by Daniel Fuss, Brian Kennedy, Matthew Eagan and Elaine Stokes, has shed assets despite a relatively strong return of 2.61 percent.
The JPMorgan Core Bond Fund, run by Douglas Swanson and Christopher Nauseda, has gained assets this year but its performance has lagged with a return of 1.31 percent. And the Federated Total Return Bond Fund, run by Donald Ellenberger, gained a small amount of money from investors in the first two months of the year despite gaining just 1.1 percent through March 28.
It’s no secret that investing in bonds has grown more difficult as interest rates begin or are poised to rise.
“The headwinds facing funds that invest in interest rate-sensitive bonds are extremely strong right now,” said Michael Lewitt, founder of investment advisory firm Credit Strategy Group.
“The other problem with interest rate-sensitive bonds is that they offer paltry returns so there is little margin for error for managers,” Lewitt added. “With government bonds around the world yielding at the lower end of their post-crisis ranges, investors are being offered very little return for the questionable privilege of lending to overleveraged governments for long periods of time.”
One positive for bond managers is that their pay is unlikely to come under the same external scrutiny as Gross‘.
The New York Times reported in 2012 that he made $200 million a year and a Pimco board member recently lamented the salary in public.
But mutual fund manager pay is generally nonpublic. It also hasn’t been a highly controversial subject because of its relatively low numbers compared with hedge and private equity fund managers and a structure that is typically aligned with performance.
About three-quarters of portfolio managers receive a bonus on their salary based on fund performance, usually over three years and adjusted to benchmarks, according to a 2012 academic study by Linlin Ma, Yuehua Tang and Juan-Pedro Gomez.
Ma, now an assistant professor of finance at Northeastern University, said a manager with strong performance can sometimes get 300 percent to 600 percent of their respective base salary as a bonus.
“Managers with performance-based compensation exhibit superior fund performance, especially when advisors link pay to performance over longer time periods,” Ma said.