September 27, 2017 / 10:47 PM / a year ago

UPDATE 1-Pimco Total Return Bond Fund, since Gross exit, outperforms most peers

(Adds cash inflow figures in paragraphs 12-14)

By Jennifer Ablan

NEW YORK, Sept 27 (Reuters) - Three years after Bill Gross shocked the financial world by exiting Pacific Investment Management Co and ending his reign over the Pimco Total Return Bond (PTTRX) fund, investors who stuck with the bond fund have come out ahead of those at most of its rivals.

Alas, many did not wait around.

Pimco Total Return, once the world's largest bond fund, was taken over by Scott Mather, Mark Kiesel and Mihir Worah. Since then, it has returned an average 3.34 percent annually in the three years through Sept. 26, topping 88 percent of its Morningstar peer category.

But the fund, which Gross had managed from 1987 until he resigned on Sept. 26, 2014 from the investment firm he co-founded, remains only about one-fourth as large as it was in April 2013, when assets under management peaked at $292.9 billion.

There are signs the heavy outflows may have subsided.

Investors in August added $348 million of new cash into the fund, not including reinvested dividends, bringing its assets under management to $74.7 billion as of Aug. 31. Assets dipped slightly to $74.5 billion as of Sept. 26.

"Despite the fund having a strong record, retail and institutional investors can have long memories and are less likely to return quickly to a fund they sold due to a departed fund manager," said Todd Rosenbluth, director of fund research at New-York based CFRA. "While the asset bleeding has slowed, net new inflows have not materialized."

For its part, the Pimco Unconstrained Bond Fund (PFIUX) - taken over by Marc Seidner from Gross - has also posted solid returns. Its average annual returns in the three years through Sept. 26 were 3.11 percent, better than 68 percent of its Morningstar peer category.

Even there, however, assets under management have shrunk to $3.6 billion as of Sept. 26 from $18.3 billion three years ago.

Gross ran that fund for nine months, from December 2013 until his departure from Pimco. He now runs a similar fund for Janus Henderson Investors.

“Pimco's Total Return and Unconstrained Bond strategies have been able to generate attractive returns even during challenging periods in the bond market by diversifying their portfolios and cultivating the best ideas generated by Pimco's more than 220 portfolio managers,” a Pimco spokeswoman told Reuters on Wednesday.

Yet the slow-moving cash inflows into Pimco Total Return and Unconstrained Bond come as fund investors have been mostly shunning risk in the third quarter, preferring bonds to equities despite historically low bond yields and flat quarter-to-date bond returns.

Bond funds have hauled in $82.2 billion this quarter, the sixth time in the past eight quarters that inflows topped $50 billion, according to TrimTabs Investment Research.

Returns on bond funds are up just 2.3 percent year-to-date, while global equity funds have popped 18.9 percent and U.S. equity funds are up 11.5 percent, according to Trim Tabs.

Pimco, which had $1.61 trillion in assets under management overall as of June 30, is owned by German insurer Allianz SE . (Reporting By Jennifer Ablan; Editing by David Gregorio)

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