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Giant US bond managers suffer March bloodbath

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Via Financial Times

US bond fund heavyweights Pimco and Lord Abbett were rocked by heavy outflows last month as investors abandoned fixed income over fears that the coronavirus pandemic would trigger a wave of corporate defaults.

Pimco, the largest bond investor in the world, bled a net $27bn in March, its highest monthly redemptions since the departure of co-founder Bill Gross in October 2014.

The outflows were equal to 6.7 per cent of Pimco’s total mutual fund assets at the end of February, according to data from Morningstar covering US long-term mutual funds and exchange traded funds.

New Jersey-based bond specialist Lord Abbett racked up $13bn in net withdrawals, equivalent to 7.6 per cent of its February asset pool.

The outflows reflected a marked investor shift away from bond funds last month. Having sucked up investor cash in recent years, the strategies experienced a dramatic reversal of fortunes as the escalation in the coronavirus crisis prompted investors to dump their holdings and flee to the safety of cash. US taxable bond funds suffered record outflows of $240bn over the month, according to Morningstar.

Morningstar’s March ranking of the worst-selling US fund managers was dominated by groups with large bond fund ranges. Fidelity and Vanguard, two juggernauts of the global investment industry, had the heaviest redemptions in absolute terms, losing $39bn and $37bn respectively.

However, Pimco and Lord Abbett’s outflows were larger relative to their overall mutual fund assets. With their flagship bond funds having attracted sizeable sums on the back of strong demand for fixed income in recent years, the groups have been hard hit by the sudden shift in investor appetite.

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Pimco’s Income fund, one of the best-selling strategies of 2019, had the second-highest outflows of any fund in March, bleeding $12.6bn.

Lord Abbett’s outflows were mainly driven by its Short Duration Income and Ultra Short Bond funds, which lost $9bn between them.

Warren Miller, chief executive of fund research company Flowspring, said the outflows reflected investor aversion to corporate bonds. “Investors are wary of non-governmental credit right now as they wonder how far the effects of the massive employment shock will cascade,” he said.

Pimco said its “defensive positioning and liquidity management” helped it navigate the “unprecedented market volatility in March that impacted virtually every segment of the asset management industry”.

Lord Abbett said outflows from its funds stabilised at the end of March and the first few weeks of April, adding it had since seen positive net flows.

Fidelity said the outflows it experienced were common to the entire fund industry and were mainly driven by investors switching from fixed income into equities. Vanguard attributed its redemptions to investors in target date funds rebalancing their portfolios.

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