Pimco Total Return Remains An “Elite Fund”: Morningstar

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Research firm Morningstar published an article today, April 14th, focusing on Bill Gross’ Pimco Total Return Fund. The article highlights the controversy that has been swirling around the famous fund and the public feud between its two principals, Bill Gross and Mohammed El-Erian, but concludes it is really all a tempest in a teapot. Despite the management-related public spectacle, and El-Erian’s departure from Pimco, Morningstar’s director of mutual fund research Russel Kinnel says it remains an “elite fund”.

Pimco stewardship downgraded to neutral

Kinnel argues that El-Erian’s departure from the firm serves to confirm the rumors concerning Bill Gross being a difficult boss and warrants a downgrade of the firm from good to neutral in stewardship. He points out that the “investment-bank-style culture” at Pimco has resulted in numerous departures over the last few years, although few would have predicted heir-to-the-Pimco-throne El-Erian’s departure.

“As a result of concerns about succession and culture, we’ve downgraded PIMCO’s Stewardship Grade to Neutral,” Kinnel said in his note to investors.

Maintaining overall Morningstar “Gold” rating

Morningstar decided to maintain its Gold rating on Pimco Total Return Fund because El-Erian’s departure really doesn’t change that much. Virtually all of the highly talented managers, analysts and traders making the day to day decisions are remaining with the firm, which means Pimco remains unmatched in its expertise in corporate bonds, mortgages, sovereign credits and derivatives.

As Kinnel highlights in his conclusion, investing is ultimately about returns, and Pimco funds continue to produce strong returns. “We have highly rated funds from PIMCO in a wide array of bond categories, and that speaks to the depth of talent that is brought to bear at PIMCO Total Return. Bill Gross’ name may be on the fund, but in fact lots of people contribute to the fund’s success. And while Gross hasn’t come off well in recent interviews, he’s quite adept at bringing PIMCO’s resources to bear for the fund’s benefit.”

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