As investors prepare for a long-term shift in interest rates, few large financial firms are as vulnerable as the giant money manager Pimco.
Over the last 30 years, the company has been one of the biggest beneficiaries of steadily falling interest rates, which have made bonds, and Pimco's trademark bond mutual funds , into star investments. The environment propelled Pimco's transformation into the fifth-largest asset manager in the world, landed it in many retirement plans and gave its leader, William H. Gross, an aura of invincibility.
Now, as interest rates have surged in the last two months, the company is showing several signs of stress.
Three-quarters of the company's popular exchange-traded funds have experienced outflows during June, with two of them losing nearly 40 percent of their holdings, according to data from Lipper. At the same time, nearly 70 percent of Pimco's mutual funds and E.T.F.'s have been underperforming their benchmarks, data from Morningstar shows.
Two of its top executives have written articles in the last week comparing their customers to passengers afloat in treacherous waters, with reassurances as to why they will survive. Pimco, formally the Pacific Investment Management Company, is far from the only asset manager to deliver subpar returns in the last few weeks. Stock prices have fallen, and the broad universe of bond mutual funds has had the biggest monthly outflow since the peak of the financial crisis in 2008, largely because of fears that the Federal Reserve will ease up on its stimulus program. But no other big-name firm has tied its fate as closely to bonds as Pimco.
David Fuller's view Bill Gross played the long-term bull market trend in bonds superbly. However, once those big trends begin to reverse, even the best long-only managers will be under considerable pressure.Back to top