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Pimco Total Return Fund posts record outflows of $9.6 billion

The headquarters of investment firm PIMCO is shown in this photo taken in Newport Beach, California January 26, 2012. REUTERS/Lori Shepler
The headquarters of investment firm PIMCO is shown in this photo taken in Newport Beach, California January 26, 2012. REUTERS/Lori Shepler

By Sam Forgione

NEW YORK (Reuters) - Pimco Total Return, the world's largest bond fund, suffered record large outflows in June, in a second straight month of withdrawals amid carnage in the bond market that have reduced the fund's assets by 8.5 percent, data from Morningstar showed on Tuesday.

In June, investors pulled $9.6 billion from the fund, which is managed by Bill Gross and is the flagship fund of Pacific Investment Management Co. It was the fund's largest single month of outflows since Morningstar records began in 1993, the investment research firm said. In May, investors pulled $1.3 billion from the fund in May, which marked the first outflows since December 2011.

The fund's assets now stand at roughly $268 billion, down from a peak of $292.9 billion in April, Morningstar said. The fund's assets are at their lowest since June 2012, when they stood at $263.4 billion, Morningstar said.

Bond mutual funds and exchange-traded funds lost a record $79.8 billion in June, according to TrimTabs Investment Research. David Santschi, chief executive of TrimTabs, said the total included $70.8 billion from bond mutual funds, nearly double the previous record outflow of $41.8 billion in October 2008. Bond ETFs lost $9.0 billion in June, he said.

The Pimco Total Return ETF had outflows of $511.5 million in June, the greatest outflows since its inception in February 2012 and following its first-ever monthly outflows in May, of $107.8 million. The fund now has $4.4 billion in assets, according to Morningstar. The actively managed exchange-traded fund is designed to mimic the strategy of the flagship fund.

Pimco, a unit of European financial services company Allianz SE , had $2.04 trillion in assets as of the end of March, according to the firm's website.

Pimco was not the only bond fund to see withdrawals last month.

The DoubleLine Total Return Bond Fund , the flagship fund of DoubleLine Capital LP run by Jeffrey Gundlach, had outflows of $1.2 billion last month, the first month it saw outflows since its inception in April 2010, according to Morningstar. The fund, which now has $38.7 billion in assets, had inflows of $293.6 million in May.

Bonds began suffering a broad selloff after the chairman of the Federal Reserve, Ben Bernanke, on May 22 said that the U.S. central bank could reduce its bond-buying later this year if the economy looked strong enough.

The Fed's monthly purchases of $85 billion in Treasuries and agency mortgage securities, part of the central bank's efforts to spur the economy, have been a source of huge support for both the bond and equity markets.

The bond selling continued through much of June after Bernanke repeated his stance at the close of the Fed's latest policy meeting on June 19 and added that the Fed could end its stimulus altogether by mid-2014.

Some bond managers, including Gross, have been trying to settle investors' nerves, saying the flight from bonds, which pushed the yield on the benchmark 10-year U.S. Treasury note up 36 basis points to 2.49 percent in June, is overdone. Yields on bonds move inversely to their prices.

Pimco Total Return had 37 percent of its portfolio invested in U.S. Treasury securities at the end of May, its largest position, according to Pimco's website.

The future of Pimco Total Return depends on whether the fund's bet on Treasuries rebounds, said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ.

"The fund is making a bet that has not worked in the last two months, and whether or not it can hold on to assets is going to be tied to whether or not that bet works," Rosenbluth said.

DoubleLine's Total Return had 4.8 percent of its assets in Treasuries as of the end of May, according to the firm's website. Gundlach, DoubleLine's chief executive and chief investment officer, said on June 4 that he sees 10-year Treasury prices rising. He said the yield on the 10-year U.S. Treasury note, which was at 2.47 percent in intraday trading Tuesday, is likely to end the year at 1.7 percent.

Performance-wise, Pimco Total Return was down 2.64 percent in June, marking its worst monthly performance since September 2008. For the year so far, it is down 3.02 percent, ahead of just 19 percent of its peers, according to Morningstar. The Pimco Total Return ETF is down about 2 percent this year, besting 73 percent of its peers.

DoubleLine Total Return was down 1.74 percent in June, marking its weakest monthly return since it was set up. For the year, the fund is down just 0.34 percent, better than 96 percent of peers.

Los Angeles-based DoubleLine has roughly $57 billion in assets.

(Reporting by Sam Forgione; Editing by Andre Grenon and Leslie Adler)

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