The worm is always turning on Wall Street. In the first calendar year since Bond King Bill Gross left his long-term home PIMCO, PIMCO Total Return fund is up over 1%, making it one of the top-performing funds in the category.
Things had been rough at PIMCO for quite a while before Bill Gross left in late September of 2014, and the redemptions and poor performance continued for some time after Gross left. The PIMCO team, however, has apparently righted the ship, as the firm’s flagship bond fund outperformed 89% of its peers in the first calendar year since the exit of Gross, producing a 1% return as of Dec. 28, based on Bloomberg data.
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More on PIMCO Total Return in 2015
Of note, PIMCO beat four of the five funds with the greatest influx of new money through November 30 in the total return sector. 2015 was much better than the previous two years in which the fund was behind a majority of peers. Keep in mind that the Total Return had $293 billion in assets at its peak in 2013, and is now down to just $92 billion in assets.
The firm has dome well this year because it avoided the debt of energy companies, emerging markets and other high-yield bonds that led to losses for most this year, according to Scott Mather and Mihir Worah, two of the fund’s three co-managers.
Pimco Total Return outperformed bond funds from the TCW Group, Dodge & Cox, Vanguard Group and Fidelity Investments, the funds that had seen the largest inflows over the last 12 months.
The $69.7 billion Metropolitan West Total Return Bond Fund saw over $18 billion in net new money, but is up only 0.4% in 2015. It has, however, outperformed Pimco Total Return over both the three and five year time horizons.
PIMCO team planning to turn more aggressive
“We’ve been defensive,” Worah noted at PIMCO’s headquarters in Newport Beach, California in an interview with Bloomberg “We now expect to be selectively offensive.”
The PIMCO team perceives opportunities in energy-related investments, such as Mexican government bonds, and currencies including the Russian ruble, Norwegian krone and Canadian dollar, next year. Pimco’s projects that oil will hit $70 a barrel next year, twice the current price of oil.
“The next opportunity that gives you returns — it’s staring you in the face,” Worah commented. “It’s energy markets and emerging markets. Sometime in the next six to 18 months is probably going to be the next opportunity.”