Investors exiting the Pimco Total Return Fund are bound to look at alternative strategies, say analysts following Bill Gross's departure.
Analysts at Morningstar say investors making an exit from Pimco's flagship fund after Gross, the so-called "Bond King," left for Janus Capital Group last week, are likely to dive into alternative, or unconstrained bond funds. Alternative strategies are a big winner in this, says Scott Burns, global director of manager research at Morningstar.
Jeff Tjornehoj, head of Lipper Americas Research, says its a natural move for investors who want to follow Gross, but who aren't ready to invest in the tiny, but solid performing fund he will take over at Janus. Janus Global Unconstrained Bond Fund, which launched in May, has about $13 million in assets.
"With only $13 million, Janus Unconstrained is not likely to show up on many radar screens," says Tjornehoj. "But there are similar products out there with billions at work."
Flows into this non-traditional bond fund category have been strong for almost two years, because of the anticipation of rising interest rates, according to Morningstar. The largest funds by net assets -- J.P. Morgan Strategic Income, Goldman Sachs Strategic Income, BlackRock Strategic Income and Pimco Unconstrained Bond -- and others promise to do well in rising interest rate environments.
Meanwhile, the hemorrhaging at Pimco continues. This week the firm announced net outflows of $23.5 billion for September. "Of note, the largest daily outflow occurred on the day of Bill Gross resignation from the firm, while outflows on the two following days were considerably smaller," Pimco said in a released statement.
The fund was already averaging about $3 billion in monthly outflows during 2014, prior to Gross departure, according to Morningstar, which estimated that the fund dropped to $201.6 billion in total assets last month, down from $222 billion in August.
The asset outflows from Pimco, Burns says, "may be a drop in the pan for the fund. But it is a tidal wave for smaller funds or growing alts.
Many investors, if they are looking at divesting from Pimco, are looking to move outside of core bonds, he explains. Institutional and individual investors, he says, are taking the opportunity to examine portfolio rebalancing.
However, not all investors are fleeing Pimco, Burns adds. Pimco Income, which is core bond-ish, actually has received $1 billion in inflows since (Gross' departure).
Tjornehoj had a similar view. "Some investors would be content with putting their money to work in another long-only bond fund," he says. "DoubleLine Total Return, for example, has brought in over $1b since Friday."
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