18
PIMCO
has been swirling in controversy these days.
Since Mohamed El-Erian left the firm, there have
been a number of published reports highlighting
heated arguments between El-Erian and Bill Gross.
Some of the over-the-top quotes from Gross have
undermined faith in his leadership just as El-Erian’s
departure left the firm without a clear heir apparent.
The news emphasized what we’ve long heard from
ex-
PIMCO
employees.
PIMCO
is a difficult place
to work, where demands are so extreme that it’s very
hard to have a life outside the firm. You won’t last
long if your fund underperforms. This investment-bank-
style culture has led to a steady stream of departures,
though none as big as El-Erian’s.
As a result of concerns about succession and culture,
we’ve downgraded
PIMCO
’s Stewardship Grade to
Neutral. However, the cupboard isn’t bare. In fact, the
firm is still the best in the business in many areas.
Can anyone match
PIMCO
when it comes to managers,
analysts, and traders? Can they match the breadth
of expertise in corporate bonds, mortgages, sovereign
credits, and derivatives?
Some can match or come close on some areas, but
few are in
PIMCO
’s league across the board. That’s
why we are maintaining our Morningstar Analyst
Rating of Gold on
PIMCO Total Return
PTTRX
. The
same goes for the fund’s near-clones,
Harbor Bond
HABDX
and
Managers PIMCO Bond
MBDFX
.
After hashing out the various issues facing the fund,
we then turned to the ratings of other intermediate-
bond funds. Looking at the Gold- and Silver-rated
funds in the category, we considered where
PIMCO
Total Return belonged. Are
Fidelity Total Bond
FTBFX
,
Dodge & Cox Income
DODIX
, and
Metro-
politan West Total Return Bond
MWTRX
, among
others, better than or equal to
PIMCO
Total Return?
Does
PIMCO
Total Return belong with those Gold-
rated funds, or is it a better fit with
Janus
Flexible Bond
JAFIX
,
JPMorgan Core Bond
WOBDX
, and others?
Our answer was that
PIMCO
Total Return is still one
of the best in class. We have highly rated funds
from
PIMCO
in a wide array of bond categories, and
that speaks to the depth of talent that is brought to
bear at
PIMCO
Total Return. Bill Gross’ name is on the
fund, but in fact, lots of people contribute to the
fund’s success. And while Gross hasn’t come off well
in recent interviews, he’s quite adept at bringing
PIMCO
’s resources to bear for the fund’s benefit.
Work environment is an important part of investment
culture and therefore relevant for fund investment
decisions. But striving for investment excellence is
another element of investment culture, and
PIMCO
certainly has that even if it isn’t the nicest place
to work.
Way back in the day, I covered Mutual Series when
Michael Price was there. One article called him the
“meanest
SOB
on Wall Street.” I don’t know if that’s
true, but my conversations with him didn’t lead me
to think they were on the wrong track. Yet his funds
were great for shareholders. They drove a hard
bargain with corporate America in order to produce
great returns for investors.
On the other hand, Dick Strong at Strong Funds had a
rather destructive side that sometimes hurt the funds,
and it certainly hurt the fund company when the
SEC
barred him from the fund industry for life and forced
him to sell the firm.
We have to evaluate the degree of difficulty of a fund
leader and culture, and there’s lots of evidence that
PIMCO
’s pressure cooker has had more positives than
negatives for fundholders. Should a number of key
lieutenants jump ship, then I’d have a different view
of the culture and the appeal of its funds. In the
meantime, I’d suggest sending
PIMCO
your money but
not your resume.
œ
Why PIMCO Total Return Remains a
Gold-Rated Fund
Tracking Morningstar Analyst Ratings
|
Russel Kinnel
What Are Morningstar
Analyst Ratings?
Our ratings are chosen for long-
term success. Analysts assess
a fund’s competitive advantages
by analyzing people, process,
parent, performance, and price.
They do rigorous analysis and
then submit their ratings to a
committee that vets their work
for thoroughness and consistency.
