Star power can make a lot of money in Hollywood, but it can be toxic in the investment industry. That message came across loud and clear the other week when superstar investor Bill Gross left the firm he founded to go to a competitor. Gross’s departure from PIMCO and his move to Janus has had a massive ripple effect throughout the bond market as investors scramble to move their money. Without the “bond king” at the helm, some investors are hitting the road.
One interesting development that has come along with Gross’ departure has been where investors are choosing to put their money—exchange-traded funds (ETFs), which have experienced a big bump in assets. And there’s a lot of money flowing out—investors have so far withdrawn a net $23.5 billion from PIMCO’s Total Return Bond fund during September. The big winner has been the iShares Core U.S. Aggregate Bond Fund—the second largest fixed income ETF with assets of US$19.2 billion. The ETF reported $753.3 million of inflows in the two days after Gross announced his departure on Sept. 26.
That adds up to a whopping 4.1% increase in shares outstanding in the iShares ETF. Much of the has come from investors who are pulling out of PIMCO’s Total Return ETF, which saw $544.2 million in withdrawals during the same period.
What all this means for the future of PIMCO’s ETF remains to be seen. But outflows could add extra stress to a bond market where liquidity is already a challenge in some areas, particularly for bond ETFs that trade like stocks.
Will it add to the crunch? Or will the market find a way to keep on flowing?