The Pimco Total Return Fund, the world's largest bond fund, saw its assets sink by a record $41.1 billion last year after a mistaken bet on U.S. Treasuries resulted in the fund's worst annual performance in nearly two decades.
Investors pulled $4.2 billion from the fund in December, marking the eighth straight month of outflows and reducing the fund's assets to $237 billion. The fund, which co-founder and co-chief investment officer Bill Gross manages, fell 1.9 percent last year, marking its worst performance since 1994.
Pimco had outflows of $10.4 billion across all of the its U.S. open-end mutual funds in December, resulting in outflows of $31.1 billion for the year. That marked the first annual total outflows from those funds since Morningstar began tracking them in 1993.
The Total Return fund had a high exposure to U.S. Treasuries last year when Federal Reserve Chairman Ben Bernanke told Congress on May 22 that the central bank could reduce its monthly bond-buying stimulus later in the year, which triggered a selloff in Treasuries and other bonds.
"They were on the wrong side of the direction of U.S. interest rates," said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ.
The yield on the benchmark 10-year U.S. Treasury spiked about 140 basis points from 1.62 percent on May 2 through the end of the year. Bond yields move inversely to their prices.
The Pimco Total Return Exchange-Traded Fund, an actively-managed ETF designed to mimic the strategy of the flagship mutual fund, had outflows of $147 million in December, and total outflows of $197 million in 2013, according to Morningstar.
Pacific Investment Management Co., a unit of European financial services company Allianz SE, had $1.97 trillion in assets as of September 30 2013, according to the firm's website.