Pimco Total Return - Keep or Sell

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knswamy
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Pimco Total Return - Keep or Sell

Post by knswamy »

I have a fairly large position in Pimco Total Return that I'm second-guessing after the departure of Bill Gross. What do you guys think of keeping or selling the fund?

I'll start with two caveats:
1. I understand I could use Index Funds instead, and I do in other market sectors, so I'm not interested in selling for an index fund.
2. This allocation will stay in the bond fund space, so I'd appreciate skipping advice to go into equity space.

I don't know much about the leadership team at PIMCO ex-Gross. Some institutions are known for their teams (e.g., TRP), while others are one-person ponys. Which one is PIMCO? Thoughts?
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Re: Pimco Total Return - Keep or Sell

Post by rob »

This is another rub with active mgt.... You will have to determine how much you want to follow Gross vs. the existing mgt ability to continue the same path. I don't know....
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Re: Pimco Total Return - Keep or Sell

Post by BlueEars »

BOND is one of my only two active holdings. It has done quite well since I bought it so no regrets. However, I've sold it this morning. Never have seen anything quite happen like this (in my portfolio) in all my investment years.

For me there are no tax consequences and holding the ETF I can just sell without waiting until the end of day ... and the aftermath of people worrying over the weekend. It's only an intermediate bond fund and there are others to choose from.
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Re: Pimco Total Return - Keep or Sell

Post by jdb »

I had a not insubstantial position in this fund In my IRA for many years but finally sold about a year ago due to substandard performance and my losing confidence in Pimco, reallocated most of it to TBM and a little to Vanguard HY admiral. With departure of Gross would have even less confidence in Pimco going forward. Still have confidence in Vanguard. Edit: also used a portion to increase allocation to TIPS ladder.
Last edited by jdb on Fri Sep 26, 2014 11:17 am, edited 1 time in total.
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Re: Pimco Total Return - Keep or Sell

Post by ivyhedge »

Folks who work for financial firms should also make sure to ask their compliance department if they are allowed to redeem or liquidate from various PIMCO funds. Doing so against the department's allowance pending notification of clients' potential courses of action (in the case of consulting firms or custodians, for example) will likely be characterized as front running.
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Re: Pimco Total Return - Keep or Sell

Post by Day9 »

I would like to take this moment to encourage the people out there with very high stock allocations and tilts overweighing SmVal and Emerging Markets to make all of their fixed income default-free instruments like CDs, I-bonds and especially long term Treasuries. Default/Credit Risk is affected by the same factors as equity risk. See the "Collective Thoughts" sticky for more. Not only is this IMO the best choice for FI in a stock-dominated portfolio, it also can have 0% expense ratio.

Even better if you hold a commodity position, Larry Swedroe has said that this allows you to take on more duration risk since these complement each other well.
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Re: Pimco Total Return - Keep or Sell

Post by Middle »

I have no idea, but this almost seems like the absolute worst time to dump Pimco. It had already been performing slightly below its benchmark and dealing with a lot of outflows. But this is big news and I would hazard a guess that there will be an overreaction to it. And maybe it's underperformance was in part due to his "erratic behaviour".

I own it as it is one of only two Fixed income choices in my 401k and I will stick with it. Who knows, a contrarian move might be buy a little more today?
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Re: Pimco Total Return - Keep or Sell

Post by knswamy »

Middle wrote:I have no idea, but this almost seems like the absolute worst time to dump Pimco. It had already been performing slightly below its benchmark and dealing with a lot of outflows. But this is big news and I would hazard a guess that there will be an overreaction to it. And maybe it's underperformance was in part due to his "erratic behaviour".

I own it as it is one of only two Fixed income choices in my 401k and I will stick with it. Who knows, a contrarian move might be buy a little more today?
With an individual stock or even closed-end fund, this would be my logic. But not sure the same holds in a mutual fund where there is no difference between price and NAV? Rather, my concern is that outflows may force liquidation of undervalued securities.
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Re: Pimco Total Return - Keep or Sell

Post by FelixTheCat »

Your answer to keep or sell depends on you. Do you think the new fund manager can perform as equal or better than Bill Gross?
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Re: Pimco Total Return - Keep or Sell

Post by denovo »

Is this in a taxable account? If so, what are the consequences of your sale? How much in taxes would you have to pay?
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Re: Pimco Total Return - Keep or Sell

Post by BlueEars »

From M* the 1 year performance numbers are:

4.63% BOND, Pimco Total Return ETF
3.68% PTTRX, Pimco Total Return
3.98% Barclays US Agg Bond
4.00% VBTLX, Vanguard Total Bond Mkt admiral
5.75% DODIX, Dodge and Cox Income fund
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Re: Pimco Total Return - Keep or Sell

Post by scone »

I sold out of Total Return some time ago, partly because of manager risk, but at the time I was thinking retirement or (God forbid) Bill's demise. I never could have predicted this quarrel in a million years. So now I'm in Treasuries-- probably won't make as much money, but no issues with the rock star leaving the band, as it were.

FWIW I still think Bill is pretty amazing. More importantly, Jack Bogle said some very gentlemanly things about Bill today.
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knswamy
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Re: Pimco Total Return - Keep or Sell

Post by knswamy »

denovo wrote:Is this in a taxable account? If so, what are the consequences of your sale? How much in taxes would you have to pay?
This is in my 401(k), so no tax implications. It does represent about 20% of my retirement assets, which is why I'm a little jumpy about it. For the record, I'm a huge fan of Gross, despite his recent short-term performance -- I tend to gauge managers over a decade as well as philosophy. The problem is I know precious little about the rest of PIMCO!
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Re: Pimco Total Return - Keep or Sell

Post by Middle »

As of this writing, the Pimco TR ETF (BOND) is down 0.23% whereas VG Total Bond ETF is down 0.09%. Hardly seems like panic, but maybe in the Fixed Income world, relatively speaking, this is panic?
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Re: Pimco Total Return - Keep or Sell

Post by Middle »

BlueEars wrote:From M* the 1 year performance numbers are:

4.63% BOND, Pimco Total Return ETF
3.68% PTTRX, Pimco Total Return
It's that nearly 100 bp difference that's kind of been a head scratcher ever since the beginnings of the ETF, hasn't it?
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Re: Pimco Total Return - Keep or Sell

Post by cfs »

Middle wrote:As of this writing, the Pimco TR ETF (BOND) is down 0.23% whereas VG Total Bond ETF is down 0.09%. Hardly seems like panic, but maybe in the Fixed Income world, relatively speaking, this is panic?
The Close End Funds from PIMCO are taking a beating (as of early today that is) -- http://247wallst.com/banking-finance/20 ... departure/
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Re: Pimco Total Return - Keep or Sell

Post by nisiprius »

knswamy wrote:I have a fairly large position in Pimco Total Return that I'm second-guessing after the departure of Bill Gross. What do you guys think of keeping or selling the fund?

I'll start with two caveats:
1. I understand I could use Index Funds instead, and I do in other market sectors, so I'm not interested in selling for an index fund.
2. This allocation will stay in the bond fund space, so I'd appreciate skipping advice to go into equity space.

I don't know much about the leadership team at PIMCO ex-Gross. Some institutions are known for their teams (e.g., TRP), while others are one-person ponys. Which one is PIMCO? Thoughts?
I don't know the answers, but if I were in your situation here are some questions I'd be asking.

1) When you purchased the fund, did you write down anything regarding what you expected and what your plans for it were? If not, can you remember?

Memory is faulty and it is often very interesting to refresh your memory of what you were thinking at the time. That doesn't mean you can't change your mind, but you should at least know whether you are changing it, and why.

In the case of an active fund, I would think that one of the things you would decide in advance of purchasing the fund is what you will do if the manager changes.

2) I would not worry about whether the fund will continue its outperformance. I would concentrate on one specific question:

---> do I actually think there's any possibility of shenanigans? <---

Here's why. It's just a package of boring old bonds. (Well, unfortunately, also some tricky stuff with derivatives and such). Barring shenanigans, what are you worried about? Let's suppose the magic left with Bill Gross and it is just a mediocre bond fund now. Well, what's so wrong with a mediocre bond fund? Apart from bragging rights, it shouldn't make much difference.

If the sky is falling in the world of bonds and bond funds, it's going to fall on everyone, active or indexed. When stocks crashed in 2008-2009 all stocks crashed. If we are actually going to see some apocalyptic bond event far worse than the "bond massacre" of 1994--during which both Vanguard Total Bond Index (VBMFX) and PIMCO Total Return lost less than 5% and recovered fully within 15 months--it will be bad for bond funds, period.

If, as I think, we are not going to see anything like that, well, maybe PTTRX will do a little better than VBMFX and maybe VBMFX will do a little better than PTTRX, and if what you need is a good genera-purpose core bond fund they will both do fine.

On the other hand, shenanigans do happen sometimes, as in the Oppenheimer Core Bond Fund, which might be the worst case ever--anybody know of anything worse? But let's be clear--that is not a case of mediocre management, that is a case of shenanigans, lawsuits, class action settlements, etc.

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knswamy
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Re: Pimco Total Return - Keep or Sell

Post by knswamy »

Great post, nisiprius! Excellent points!
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Re: Pimco Total Return - Keep or Sell

Post by nisiprius »

knswamy wrote:...I don't know much about the leadership team at PIMCO ex-Gross. Some institutions are known for their teams (e.g., TRP), while others are one-person ponys. Which one is PIMCO?...
I don't know much about it either, but here are two indications of how Bill Gross himself presented it.

On the one hand:

1) When describing the BOND ETF, Gross said "there are some differences in terms of portfolio holdings. For example, in line with regulatory requirements, the ETF won’t use options, futures or swaps. Other factors, such as the timing of cash flows, can also influence portfolio construction. Beyond these, though, the management approach and philosophy of BOND and the Total Return strategy will be nearly identical, and I will be managing both." The emphasis on "I will be managing both" suggests that he wants us to think of "the" strategy as his strategy.

On the other hand:

2) In early 2011, Gross made a bold move, taking PIMCO Total Return (PTTRX) almost entirely out of Treasuries. Treasuries surprised him by having a good year, and I was childishly pleased to see Vanguard Total Bond Index Fund outperform PTTRX that year. Here's the point: in October 2011 he said he was “having a bad year. . . . Pimco’s centerfielder has lost a few fly balls in the sun.” In looking back on it in 2012, he said "Last year was 'E-CF' or, for non-baseball aficionados error centerfield." I'm not too good on baseball analogies, but apparently Gross sees his role on the "team" as analogous to the center field position in baseball.
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Re: Pimco Total Return - Keep or Sell

Post by hirlaw »

I sold Harbor Bond (HABDX) and used the proceeds to purchase more of Metropolitan West Total Return Bond (MWTRX). Most of my taxable bond allocation is in short term index funds such as BSV. Some of my intermediate term is in active management. In active funds, I believe you are buying the manager, not the fund.
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Re: Pimco Total Return - Keep or Sell

Post by anncatchingup »

I also have a significant holding in PIMCO Total Return in my 457 plan (in Fidelity) with my current employer. I am retiring on January 10, 2015. I planned to roll my 457 into an IRA in my account at Vanguard (all into Total Bond Index Admiral in this case). Should I keep to this plan? Or should I sell my PIMCO now and put it into a money market (within the 457 account) and let it sit there until I retire and can roll it over?

I don't usually react impulsively to current market news and stick to my investment plan, but this is a bit troubling. I would hate to lose a significant portion of my retirement funds just before I planned to move them.

Thanks for your feedback.

Ann
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Re: Pimco Total Return - Keep or Sell

Post by Doc »

anncatchingup wrote:I don't usually react impulsively to current market news and stick to my investment plan, but this is a bit troubling. I would hate to lose a significant portion of my retirement funds just before I planned to move them.
1) We are talking fixed income. If the entire management walked out the door you would expect to get your current return for the duration.

2) PIMCO is a huge shop. While Gross may have contributed greatly to the overall trading philosophy and tactics (ie derivative usage) over the past gazillion years, those people he trained and nurtured are still there and most of them still follow his guidance (or they would have left long ago.)

3) The biggest risk as I see it is major withdrawals from PIMCO funds. But PTTRX Makes a large use of derivatives like credit default swaps. That means that they have a lot of cash like securities. (Caveat, I am not a FI expert.)

Portfolio From M*
Type % Net% Short% Long%
Cash -67.78 246.45 178.66

They can handle a whole lot of withdrawals without any problem.

4) Nisi asked
In the case of an active fund, I would think that one of the things you would decide in advance of purchasing the fund is what you will do if the manager changes.
Answer: Just what I always do. Put the fund on my "watch list" and pay closer attention to future developments. (And I do the same every time Vanguard decides to change their index when they have a dispute with the index publisher over fees or they decide a new index has a little less transaction cost associated with it.)

5) Watch all the Saturday morning financial shows on cable tomorrow and then go take a long walk. :D
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Re: Pimco Total Return - Keep or Sell

Post by BlueEars »

knswamy wrote:....(snip)...
I don't know much about the leadership team at PIMCO ex-Gross. Some institutions are known for their teams (e.g., TRP), while others are one-person ponys. Which one is PIMCO? Thoughts?
I don't think anyone is likely to have a great answer for this one. If there are no tax consequences then why not switch?

One fund that is run by a team and has a good long term track record is DODIX (Dodge & Cox Income Fund). The ER=0.43% and the effective duration is currently 4.3 years. M* gives it an "A" for credit quality. 5 year return is 5.4%.

In contrast, the VBTLX (VG Total Bond Mkt) has ER=0.08% and duration=5.6 years with credit quality = "AA". 5 year return is 4.1%.

Other alternative ideas for PTTRX (or BOND) sellers?
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Re: Pimco Total Return - Keep or Sell

Post by cfs »

Before you sell

Here is what John Bogle said today "if you're going to take your money out of PIMCO, do it for reasons other that Gross leaving the firm."

More on the link . . . http://www.businessinsider.com/jack-bog ... oss-2014-9
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Re: Pimco Total Return - Keep or Sell

Post by goodenyou »

cfs wrote:Before you sell

Here is what John Bogle said today "if you're going to take your money out of PIMCO, do it for reasons other that Gross leaving the firm."

More on the link . . . http://www.businessinsider.com/jack-bog ... oss-2014-9
I got out because it was laden with fees in my 401(k). Glad I did. The risk over 2% guaranteed with 0% fees made more sense. Glad I did.

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Re: Pimco Total Return - Keep or Sell

Post by cfs »

goodenyou wrote:
cfs wrote:Before you sell

Here is what John Bogle said today "if you're going to take your money out of PIMCO, do it for reasons other that Gross leaving the firm."

More on the link . . . http://www.businessinsider.com/jack-bog ... oss-2014-9
I got out because it was laden with fees in my 401(k). Glad I did. The risk over 2% guaranteed with 0% fees made more sense. Glad I did.

http://www.bogleheads.org/forum/viewtop ... 1&t=138705
Good job, we sold the total return admin early this year as part of the re-balancing act, I believe Doctor El-Erian was still with the company, we moved the money to one of our balanced funds, not looking back.
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Re: Pimco Total Return - Keep or Sell

Post by RMO87 »

This article should make you feel more at ease about staying put:

http://money.cnn.com/2014/09/26/investi ... ?iid=HP_LN
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Re: Pimco Total Return - Keep or Sell

Post by Johm221122 »

knswamy wrote:
denovo wrote:Is this in a taxable account? If so, what are the consequences of your sale? How much in taxes would you have to pay?
This is in my 401(k), so no tax implications. It does represent about 20% of my retirement assets, which is why I'm a little jumpy about it. For the record, I'm a huge fan of Gross, despite his recent short-term performance -- I tend to gauge managers over a decade as well as philosophy. The problem is I know precious little about the rest of PIMCO!
Is there better or similar quality choices in available in your plan?

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Re: Pimco Total Return - Keep or Sell

Post by nedsaid »

I have a large holding in an Intermediate Term Bond Fund that is managed by a team of investment managers. Its performance has been pretty good, very comparable to the Vanguard Total Bond Market Index, maybe beating it a little. It has been a very steady fund and one thing that gives my confidence is that it is not dependent on a superstar fund manager.

If I had PIMCO Total Return as a large holding in a 401k and didn't have good index alternatives to it, I would keep it and not worry about it too much. If I had a good choice of low cost alternatives, I would probably replace it with Total Bond Market Index, a good TIPS fund, and a Corporate Bond Fund. The Vanguard products if available would be my first choice.

I own the Vanguard Total Bond Market Index, Vanguard TIPS, a GNMA fund, and an International Bond Fund (not Vanguard) in my savings plan at work. In my IRA accounts, I own diversified Intermediate Term Bond Funds, a TIPS fund, a GNMA fund and an International Bond Fund. I don't own corporate bond funds because the Intermediate Term Bond Funds that I own have a good helping of corporates in them.

I don't think keeping the PIMCO Total Return fund will hurt you much but I think the fund will miss Bill Gross. I sure wouldn't chase Gross over to Janus. What gives me pause is that Gross is 70 years old. If you owned this fund, you are probably glad that you did but I would sure consider selling. But there is no urgency to sell now. I would be more inclined to stay if PIMCO has a deep bench of managers and analysts. If it turns out that Gross was a one-man band, I would be more inclined to sell.
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