PIMCO Total Return Fund falls in June, weakest month since 2008


The PIMCO Total Return Fund, the world's largest bond fund, run by Bill Gross, in June sustained its weakest monthly performance since September 2008 amid a selloff in U.S. Treasuries and other bonds, data from Morningstar showed on Monday.

The fund, which has roughly $285.2 billion in assets, was down 2.64 percent last month, marking its weakest monthly performance since the collapse of Lehman Brothers in the fall of 2008. The fund was ahead of just 17 percent of other U.S. intermediate-term bond mutual funds that month.

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The PIMCO Total Return ETF, meanwhile, was down 2.21 percent in June, marking its weakest monthly performance since inception in February 2012, the fund research firm Morningstar said.

The DoubleLine Total Return Bond Fund , the flagship fund of the Los Angeles-based DoubleLine Capital LP, was down 1.74 percent last month - its weakest monthly performance since its inception in April 2010, Morningstar data showed.

That monthly performance bested 72 percent of peers, according to Morningstar.

The yield on the U.S. benchmark 10-year U.S. Treasury note rose about 36 basis points to 2.49 percent in June on fears that the Federal Reserve would scale back its $85 billion in monthly purchases of Treasuries and agency mortgage securities. As yields rise, prices fall.

Fed Chairman Ben Bernanke said on May 22 that the central bank could reduce its bond-buying later this year if the U.S. economy looked strong enough. Bernanke reiterated his stance at a press conference on June 19 and added that the central bank could halt its bond-buying altogether by mid-2014.

The PIMCO Total Return Fund had 37 percent of its portfolio invested in Treasury securities in May, its biggest position, according to PIMCO's website. The DoubleLine Total Return Bond Fund had over 4 percent of its assets in 10-year Treasury notes as of June 4, DoubleLine Chief Executive and Chief Investment Officer Jeffrey Gundlach said on an investor webcast.

Gross, a founder and co-chief investment officer at PIMCO, made an effort to soothe bond investors in his July investment letter entitled "The Tipping Point." Gross said that the bond market had been overpriced as a result of the Fed's stimulus, but that the selloff in bond markets that has occurred after Bernanke's comments on May 22 should not scare investors away from bond funds.

"The U.S. economy is not sinking, nor are the majority of global economies. Their markets just had too much risk, and in PIMCO's opinion, too much hope for a constant QE and for the growth that it would produce," Gross said, referring to the Fed's quantitative easing policy.

Pacific Investment Management Co (PIMCO), a unit of European financial services company Allianz SE , had $2.04 trillion in assets as of the end of March. Gross runs the Newport Beach, California-based firm with chief executive and co-chief investment officer Mohamed El-Erian.

Gross went on to say that the U.S. economy is far from achieving the Fed's 7 percent unemployment and 2 percent inflation targets, and that the Fed Funds rate - the central bank's benchmark short-term borrowing rate- is likely to remain at 0.25 percent until at least mid-2015. In light of this, Gross said, the selloff in 10-year Treasuries has been overdone and the yield on the note should be 2.20 percent rather than about 2.55 percent.

Gross told bond investors not to "jump ship." "Have a cocktail, tell the band to stop playing dirges, because you're gonna be just fine with PIMCO at the helm," Gross wrote.

Other managers of big bond funds such as Gundlach of DoubleLine and Stephen Walsh, the co-chief investment officer of Western Asset Management Co., hosted webcasts on the U.S. bond market last week. Gundlach, who hosted two webcasts, reassured investors that bond prices are likely to bounce back from the recent selloff.

"The momentum of higher interest rates is slowing," Gundlach said on June 25. "Now is the time to be thinking about taking advantage of the price discounts that exist in some of the risk areas of the bond market."

Gundlach's DoubleLine has roughly $57 billion in assets.

(Reporting by Sam Forgione; Editing by Bob Burgdorfer)