Gross, co-founder of Newport Beach, California-based Pimco and dubbed as the market's "Bond King," has been dealing with a public falling-out with former heir-apparent Mohamed El-Erian, who shared the co-chief investment officer title.
Several U.S. institutional investors, including retirement systems, said they are closely monitoring the developments at Pimco and have formally put Pimco on "watch lists," a signal that they will keep a much closer eye on its performance than usual.
"In short, underperformance the past 12 months coupled with the leadership changes have led to investor concerns," said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ.
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The North Dakota State Investment Board, which has about $400 million invested with Pimco, put the fund on its watch list on February 28. The California Public Employees' Retirement System, the largest U.S. pension fund, said it had not placed Pimco on a formal watch list, but it was also paying close attention to developments.
Fund began struggling in February
Morningstar senior analyst Eric Jacobson said what hurt Pimco Total Return's performance most in March was its significant overweight position in shorter debt and its underweight position in long-dated bonds.
The Barclays U.S. Treasury 20+ year Index posted returns of 0.79 percent in March alone, while the Barclays U.S. Treasury 5-7 year Index returned -0.82 percent for the same period.
"Having such short-term exposure has hurt the fund's performance relative to its peers," Rosenbluth said. The Total Return Fund had an effective duration of 4.71 years at the end of February, according to data on the Pimco website. Duration is a measure of a bond's price sensitivity to yield changes.
The Pimco Total Return Exchange-Traded Fund, an actively managed exchange-traded fund designed to mimic the strategy of the flagship mutual fund, was up 0.084 percent in March but posted outflows of $53.4 million.