NEW YORK: The Pimco Total Return Fund, the world’s largest bond fund, saw its assets sink by a record $41.1bn last year after a mistaken bet on US Treasuries resulted in the fund’s worst annual performance in nearly two decades.
Investors pulled $4.2bn from the fund in December, marking the eighth straight month of outflows and reducing the fund’s assets to $237bn. The fund fell 1.9 percent last year, marking its first annual loss since 1999 and its worst performance since 1994, according to preliminary Morningstar data.
Pimco had outflows of $10.4bn across all of the its US open-end mutual funds in December, resulting in outflows of $31.1bn for the year. That marked the first annual outflows from those funds since Morningstar began tracking them in 1993.
The fund’s status is closely watched because Pimco, a unit of European financial services company Allianz SE, is one of the world’s largest bond managers and had $1.97 trillion in assets as of September 30, 2013, according to the firm’s website.
Investors also pulled $147m from the Pimco Total Return Exchange-Traded Fund in December, and the ETF saw net outflows totalling $197m in 2013, Morningstar data showed.
The ETF, which is actively-managed and designed to mimic the strategy of the mutual fund, fell 0.85 percent in December, marking the worst performance among its peers, according to preliminary Morningstar data. For the year, the ETF fell 1.2 percent but still beat 80 percent of peers.
The Pimco Total Return Fund had a large holding in Treasuries last year when Federal Reserve Chairman Ben Bernanke told Congress on May 22 that the central bank could reduce its $85bn in monthly bond-buying stimulus later in the year, which triggered a selloff in Treasuries and other bonds. “They were on the wrong side of the direction of US interest rates,” said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ.
The Total Return Fund had a 37 percent exposure to Treasury securities at the end of May, according to data released on the Pimco website, making Treasuries its largest holding. The fund maintained the high exposure to the debt through November.
The yield on the benchmark 10-year US Treasury meanwhile spiked about 140 basis points from 1.62 percent on May 2 through the end of the year. Bond yields move inversely to their prices.
The benchmark Barclays US Aggregate bond index fell over two percent in 2013 in the wake of the bond market selloff, also marking its first annual loss since 1999 and its worst performance since 1994.
Reuters
