Things look bad for bond king Bill Gross, head of Pacific Investment Management Co. Investors have pulled money out of Pimco’s flagship fund for 12 consecutive months amid turmoil at the firm. Meanwhile, investors have been pouring money into Jeffrey Gundlach’s rival investment firm, DoubleLine Capital, in downtown Los Angeles.
Followers of the financial news media might have picked up the narrative thread of this “clash of the titans” story, which goes like this: Gross, 70, is losing his grip on the throne and Gundlach, 53, might unseat him soon; Pimco is the past, DoubleLine is the future.
But industry insiders are saying, “Not so fast.” The recently diverging fortunes of Pimco and DoubleLine might have more to do with low interest rates and a hot stock market than the people at the top. Investors are running toward DoubleLine’s higher yields rather than fleeing Pimco’s tarnished reputation.
“I would not count Pimco out,” said Mark Minichiello, president of West L.A. money manager Quincy Cass Associates. “They’ve been around for a long time. This is a hiccup.”
The narrative thread feeds off these developments: DoubleLine recently launched two funds and poached a key executive from Pimco. The firm has delivered stronger returns than almost all of its peers. Meanwhile, Pimco, in Newport Beach, has slid from the top of the charts to below average.
Gundlach founded DoubleLine in late 2009, days after he was fired from his job managing $70 billion at the firm where he had worked for 24 years, Trust Co. of the West, better known as TCW. Most of the team that worked for Gundlach at TCW immediately defected to DoubleLine. The startup launched its Total Return Fund in March 2010 and quickly became the unstoppable force in bonds, performing in the top 2 percent of funds in its first two years. It is beating 90 percent of its competitors year to date, according to Morningstar Inc., an investment research firm in Chicago.
Meanwhile, Pimco has long been the immovable object in the fixed-income world, founded by Gross in 1971 and now owned by German insurance giant Allianz. Its Pimco Total Return Fund manages $230 billion in assets as of the end of April, down 21 percent from its peak of $293 billion in April of last year. It still dwarfs DoubleLine’s Total Return Fund, which has about $32 billion in assets.
But Pimco’s performance is hurting along with its cash flows, beating only 29 percent of funds in its category this year.
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