Pimco’s flagship fund sees record $27.5B outflow

The asset drain at Pimco continues.

The bond giant said Tuesday that investors withdrew $27.5 billion from its flagship Total Return fund in October, shrinking the size of the world’s largest bond fund to $171 billion.

In its release, Pimco was quick to point out that nearly half of this sum was removed in the five days following the departure of its manager Bill Gross.

Nevertheless the size of the monthly outflow underscores the challenge Pimco faces in persuading investors to stick with the company following months of management turmoil and — in the case of Total Return — middling performance.

To date, Total Return trails 79 percent of its peers according to Morningstar. Pimco executives say they accept that until these figures show marked improvement, the outflow is likely to continue.

And while it is true that Pimco Total Return remains the world’s largest bond fund, the once yawning gap between itself and its peers is narrowing.

For example, the fastgrowing investment firm Doubleline said this week that its own total return vehicle had attracted $1.8 billion in assets last month, bringing the fund’s size to $38 billion.

That is still quite a distance from $171 billion, but the trend is clear enough and at this size Pimco’s total return fund is at its lowest level since July 2009.

Like many bond funds, Pimco is betting that growth at home and abroad will remain stagnant and that central banks will keep interest rates low and print money to buy bonds. In such an environment, Pimco managers have said, higher yielding assets such as emerging markets and mortgage securities in the United States will be winning investments.

Pimco’s exchange traded fund has also had sharp outflows of late — losing $1 billion since Gross left.

And while half of this amount came on the days after he left, the withdrawals have continued since then with one of the largest daily outflows of $51 million occurring Friday.