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Net Net: Promoting innovation and managing change

Pimco is pulling down rest of the bond market

A man walks past a Pacific Investment Management Company LLC (PIMCO) advertisment which is displayed on a building in Hong Kong, China.
Brent Lewin | Bloomberg | Getty Images

Investors have been withdrawing money aggressively out of bond funds recently, and it's pretty much all Pimco's fault.

In fact, when excluding flows from the Newport Beach, California-based fixed income behemoth, all other bond funds actually have been taking in money, according to calculations from Morningstar that highlight just how pronounced a reaction investors have had to Bill Gross leaving the firm he founded.

In total, taxable bond funds lost $41.8 billion in September and October. When subtracting Pimco from the equation, October's number turns positive by $9.2 billion, the data show.

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Gross left Pimco Sept. 26, some 43 years after he helped turn the firm into a major player in the fixed income space, particularly through its Total Return Fund, which remains the largest bond fund in the world despite hemorrhaging money for the past year and a half or so.

The TR fund has seen nearly $83 billion in losses over the past 12 months and currently holds $170.9 billion.

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The post-Gross carnage has been felt acutely through the entire firm, which saw $40.9 billion in outflows for October alone. The total outflow of $50.1 billion in September and October is the largest-ever two-month period of redemptions for any fund, Morningstar reported.

Pimco now manages $1.87 trillion and has stressed that outflows slowed through the month as investors adjusted to the new complexion of the firm, which lost both Gross and former CEO Mohamed El-Erian this year. Pimco officials did not immediately respond to a request for comment.

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At Gross' new home, Denver-based Janus Capital, the story is starkly different.

A much smaller player in the space with $177.7 billion in assets under management, the arrival of the "Bond King" ended a three-year streak of outflows. Janus took in a net $1.1 billion in October. The Janus Unconstrained Bond Fund, a new player in the market that Gross will manage, brought in about $400 million, according to Morningstar.

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Investors overall have been shoveling money into passive funds that track indexes—including a huge move toward exchange-traded products—and out of active funds. Passively managed U.S. equity funds have raked in $139.4 billion over the past year, while their counterparts in taxable bonds have attracted $86.9 billion, according to Morningstar data.

Actively managed funds have seen $79.3 billion come out of U.S. equity products, and outflows of $19.2 billion from bonds.

Jack Bogle's Vanguard has been the big winner in the trend, attracting $231.3 billion for the year, with BlackRock a distant second at $64.3 billion. BlackRock remains the industry leader in the ETF space with $745.3 billion under management, while Vanguard holds third at $412.9 billion, according to ETF.com.