Crowning A New Bond King: Vanguard Fund Overtakes PIMCO For Bond Throne

No one stays on top forever, not even the world's most well-known bond investor, and to be sure, when Bill Gross' long reign at the top of the fixed income universe finally came to a sudden and rather unceremonious end last October, the race to lay claim to the inevitable outflows from PIMCO's Total Return Fund was on. The fund has seen 24 straight months of withdrawals and lost more than $100 billion last year alone, the majority of which flowed out in the wake of Gross' departure.

As the old Bond King transitioned to Janus where he now manages a far more modest fund, the prevailing assumption was that DoubleLine's Jeff Gundlach would assume the throne by default. Not so. As WSJ reports, the new Bond King is in fact Joshua Barrickman, senior portfolio manager at Vanguard's Total Bond Market Index fund which, as of the end of last month, surpassed the Total Return Fund in AUM. Here's more:

For almost two decades, Pacific Investment Management Co. has laid claim to the world’s largest bond fund.


On Monday, it lost that title to Vanguard Group, whose Total Bond Market Index fund ended April with $117.3 billion in assets under management, surpassing the Pimco Total Return fund, which closed the month with $110.4 billion, according to estimates from both companies.


A year ago, the two funds were more than $100 billion apart, demonstrating the remarkable turnabout in fortunes at Pimco in recent years that began with sagging performance of the fund and culminated in the striking departure of its star manager and co-founder Bill Gross.

In many ways, the changing of the guard speaks to the allure of indexing versus active fund management:

The toppling of Total Return marks a significant turning point for the industry as investors flock to plain-vanilla funds that follow market indexes rather than relying on star managers to pick winners.


Another blow for Pimco was a trend away from fund managers such as Mr. Gross and toward so-called passive investments that mimic indexes and other benchmarks for a fraction of the cost of the typical mutual fund.


“The indexing story helps,” said Joshua Barrickman, senior portfolio manager of Vanguard’s Total Bond Market Index fund, which tracks a version of the Barclays U.S. Aggregate Bond Index. “It continues to have a lot of momentum and people are starting to see that it makes sense.”



Barrickman claims to have taken the crown without ramping up marketing or employing the 'hard sell.' Rather, Vanguard says the shift is further validation that low-cost indexing beats actively managed portfolios over time. As WSJ notes, the Total Return Fund returned an average of 3.24% over three years, around 100bps more than the Total Bond Market Index fund. However, the PIMCO fund's expense ratio is nearly seven times the fees charged by Vanguard. Barrickman's assessment of his ascendancy to the bond throne is a reflection of Vanguard's generally straightforward mentality: "Assets show up and that’s great."

As for all of the active managers out there who fear their star may one day also fall in the face of the indexing coup, well, there's always the "smart beta" route.