Why the big outflows? The Bill Gross kerfuffle. We just reaffirmed our Bronze Morningstar Analyst Rating on the fund, as things have actually gone pretty well since Gross' departure. The outflows are the biggest negative, but they have had little to no impact on returns, and performance has been solid. The new three-person team seems to be functioning well so far, though we'll want to see more evidence of that before considering an upgrade. Outflows have finally started to slow down, though there's no telling when they'll actually end. I haven't touched my PIMCO Total Return investment (other than rebalancing) since Gross left, and I think that's the wise course for most people.
Why? Even before Gross left, investors were bailing on the fund because of disappointing performance and manager turnover. I see no reason to rush into this one given those issues but also because I really want to see how new manager Marc Seidner uses the fund's very broad mandate. He's the third manager in 14 months, so let's take our time seeing what territory he marks out. When this fund was launched in 2008, the excitement was huge as investors streamed in. They hoped the fund would be a winner whether rates rose or dropped, but instead it had pedestrian returns and stumbled a few times. It has a Morningstar Analyst Rating of Neutral. We'll see how it behaves under its new management.
Why? Poor returns have spurred big redemptions, though the trailing 12-month return is decent. The outflows represent more than half the fund's asset base a year ago, and that's a problem for an equity fund. The fund was a poor performer from 2011–14. It will need to sustain the recent rally to staunch the outflows. Once they do stop, this Bronze-rated fund could be a decent bet. A bias toward emerging markets and energy stocks has hurt, but the market can rotate back at any time.
Why? Gross was formerly the manager at this fund. It, too, had a couple of years of weak performance that no doubt spurred the redemptions. Now, Scott Mather and Jerome Schneider are at the helm. Schneider heads PIMCO's short-term desk, so he was a logical addition. We rate the fund Bronze because of the talented pair heading it and because of PIMCO's depth in this area. It's worth holding on, though I'd caution against using it as a money market substitute given that it dips into lower-quality debt.
Why? Some of the outflows are due to some retirement plans' conversion to Collective Investment Trusts. (Fidelity hasn't said how much.) The rest is hard to explain given that performance has remained solid if unexceptional. I would certainly stick with Will Danoff as long as he's at Fidelity Contrafund. His record is remarkable. To be sure, the fund's massive asset base is a handicap, but he's had great success with a big fund for many years. We rate it Silver.
Why? Lousy recent performance has spurred an exodus. Rob Arnott thinks emerging markets have far more appeal than the United States, but the former lagged far behind the latter in 2013 and 2014 before outperforming thus far in 2015. Thus, the fund's once-strong record has taken a hit, particularly in recent years. However, a little market rotation can fix that. We rate the fund Silver, so of course I'd stay with it.
Why? Performance has slumped badly. We rate this fund Neutral not just because of the slump but also because outflows are a much bigger problem for a fund that holds a lot of small caps, as this one does. Small caps don't have as much liquidity as larger names, so it can get ugly when a manager is forced to sell. They can end up driving down prices on themselves, and that can spur more redemptions. So, when a small/mid-cap fund like this has such huge outflows, there's a real danger that it will hurt returns. On May 1, Columbia Acorn announced lead manager Rob Mohn plans to retire later this year. That's another reason to stay away.