On September 26, 2014, Bill Gross announced his sudden departure from PIMCO, the firm he co-founded in 1971. This shake-up comes at an already troubling time for the investment company after the heir apparent, Mohamed El-Erian, announced his resignation earlier in the year. The firm’s flagship Total Return fund has seen negative outflows for 16 months, losing 10% of its assets just in September.
The significance of PIMCO’s Total Return fund is that it’s ubiquitous in the portfolios of many individuals and institutions. After the most recent recession, bond funds experienced large inflows of money and PIMCO greatly benefited from that, having Bill Gross as their “Bond King.” The Total Return fund is also pervasive in institutional accounts such as 401k and pension plans. Taking a look at many 401k plans, there’s a good chance you’ll see the fund as one of the few bond choices or in some cases, the only option. Institutional investors may be slow to react, making decisions after numerous investment committee meetings. It would not be surprising to see more retirement plans drop PIMCO’s fund in the months ahead, exercising their fiduciary responsibilities to their investors. As I write this article, Charles Schwab has just announced the removal of PIMCO Total Return from their target date funds.
Mutual funds are structured as open-ended investments where you redeem your shares when it’s time to sell. Funds may have enough cash to pay a small amount of redemption but need to sell investments for much larger ones. If the outflows are big enough, this will negatively affect the fund manager’s ability to manage the investments.
What does the job change of one man really mean to you? The answer is Gross isn’t just any man, and the fund isn’t just any fund. Although Bellwether Capital Management does not believe it making knee-jerk reactive moves, we do believe in continually monitoring your portfolio to maintain the proper allocation and being aware of changes that may affect you. If you think the changes at PIMCO may affect you, feel free to contact BCM for a review of your holdings and what options you have.
Wei Trieu, CFP®
This blog is for informational purposes only. Nothing on this blog represents advice. Investing is inherently risky and involves the potential for loss. Victor Lai does not own any of the securities referenced in this posting. Clients of Bellwether Capital Management LLC may own shares of the securities referenced in this posting.