For the ninth straight month in a row, investors reduced exposure to Pimco’s flagship Total Return Fund.  In January the fund lost $3.5 billion in assets, according to reports. In 2013 the fund, which currently manages $237 billion, saw $41.1 billion in outflows.

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Pimco Total Return ETF

The Pimco Total Return ETF, designed to mimic the flagship fund’s strategy, also posted January outflows of $32 million and has followed a similar nine month period of outflows.  The current nine month outflow trend reverses a trend toward inflows from 2009 to 2012 as the bond market was rising in price, dropping in yield.

“Investors, I think, are still looking at the 2013 poor performance and reacting to it,” Todd Rosenbluth, director of mutual fund research at S&P Capital IQ, was quoted as saying in a Reuters report.

Downtrend in bond yields reverses

After a twenty year downtrend in interest rates, which leads to bond price appreciation, 2014 could be a transition year for rates as the Federal Reserve has begun to reduce artificial measures that keep rates low.  This transition was reflected in 2013, which saw bond yields bottom out, but have risen recently on flight to quality issues.

Continued outflows on heels of El-Erian departure

Consistent customer outflows and a difficult market environment for bonds were cited by ValueWalk among potential reasons for the January 21 exit of Mohamed El-Erian, former chief executive officer and co-chief investment officer at the firm.  El-Erian’s departure leaves Bill Gross as the sole chief investment officer at the firm, which has begun to develop alternative investment products. In September they announced the launch of a managed futures trend-following product to be sold in a mutual fund wrapper and distributed through financial advisors.

The Pimco Total Return fund primarily focuses on purchasing high quality U.S. bonds including many U.S. Treasuries and has been a core allocation among many institutional fund managers.  In the firm’s January investment outlook, Gross said he expects 3-4% total return for bonds this year following the negative return last year.  Over the last ten years the fund delivered an average return near 6%, outperforming as many as 96% of its competitors, according to a Morningstar report.