Pimco spreads its wings and looks beyond its strengths

Pimco wants to be more than just a fund manager, and plans to expand that message to the retail marketplace. In a year during which firms have struggled to increase assets, Pacific Investment Management Co. LLC has led the industry's top 25 fund managers in asset growth, and some think that Pimco is in a position to capitalize on that. But the Newport Beach, Calif.-based firm wants to go beyond fixed-income mutual funds. It launched a series of target date funds this year and completed filings during the summer for both passive and actively managed bond exchange traded funds. The firm also has several ideas on the drawing board to add to its separately managed account offerings. "There is no doubt that from the broad business management perspective, the individual investor segment of the market is important to our business," said Tammie Arnold, head of global wealth management at Pimco. "We continue to be very aware of the unique issues that people face in their investment objectives," she said. "While fixed income is our core, we have evolved our business to be a broad solutions provider."

FUND PERFORMANCE

The retail business represents about one-quarter of the firm's $829.5 billion in assets, Ms. Arnold said. "We are focused on building that [retail business]," she said. "We understand there are some formidable competitors out there, but we've had good success in growing our footprint." Fund performance as well as market conditions may be driving that growth. Pimco's flagship $137 billion Total Return Fund was the top-selling mutual fund in August, according to Boston-based Financial Research Corp. From January through August, firm-wide assets grew 16%. "There has been a flight to quality for the bond sector," said Paul Curley, an FRC research analyst. "Pimco is able to capitalize on that." In an effort to expand choices for intermediaries, Pimco launched a P share class this year for use in wrap accounts, Mr. Curley noted. According to FRC, 71% of Pimco's bond funds ranked above their category mean for the one-year period ended June 30, 68% over three years, 78% over five years and 94% over 10 years. Performance during tough times will help Pimco reach retail investors, said Lawrence Jones, associate director of fund analysis at Chicago-based fund tracker Morningstar Inc. Anxious investors are looking to fixed income, said Thomas Fisher, founder of Fisher Financial Strategies, a fee-only business in Cambridge, Mass., that doesn't manage assets. "Stocks have a bad name right now," he said. "I think [Pimco] will be good at leveraging their reputation at a time like this." Pimco understands the global markets, said John Bussell, principal at the Miami office of Foster City, Calif.-based Hewins Financial Advisors LLC, which manages $2.3 billion in assets. "Even though they are very large, they have the skill to maneuver and be flexible to be in a position to take advantage of big opportunities," he said. With risk on the front burner, individual investors may be taking a longer look at Pimco.

'COGNIZANT OF RISK'

"Risk is not typically focused on by retail investors, but in the last year or so the market took a 180-degree turn. This has changed the perspective of the retail investor," said industry consultant Jeff Keil, president of Keil Fiduciary Strategies LLC of Littleton, Colo. "Pimco is considered one of the best institutional managers out there," he said. "They are very cognizant of risk; they are in an enviable position." "We are putting strategies out that will address the unique risks that individual investors face," Ms. Arnold said. "All of the new strategies are not related to individuals, but we explicitly think about individuals in our product development," she said. "I think you'll see more of that [theme] come out." Still, the retail market presents challenges. "Their funds tend to be more expensive on the retail side than their competitors'," Mr. Jones said.

EXPENSE RATIO

For example, the expense ratio for retail shares for the Total Return Fund is 0.75%, compared with 0.69% for the average no-load fund in the intermediate-term-bond category, he said. "The Pimco fund is the largest bond fund in the world and as such should have greater economies of scale to offset costs and be able to offer investors a better deal," Mr. Jones said. "High costs on the retail share classes are one thing that could hurt attempts to gain a greater presence in the retail space." Pimco offers access to different share classes and pricing, Ms. Arnold said. Individual investors may access the institutional share class of the Total Return Fund, with an expense ratio of 0.46%, with a minimum of $100,000 and a transaction fee, she said. "D shares are available on discount brokerage platforms without a transaction fee," Ms. Arnold said. "The minimum investments vary." The P share for fee-based adviser platforms is 0.56%. The ETF market is new territory. "Managers in the ETF space focus predominantly on equities. We enter the market as a manager with fixed income at its core," Ms. Arnold said. "Also, given the passive nature of ETFs until this year, the players in that market are generally known as passive managers," she said. "We are entering as active managers; we feel comfortable about broadening the value in that space." Marketing may mean more education. "They have some strategies that will allow investors to take on certain risks while avoiding others. The average retail investor may look at the options and be really confused," Mr. Jones said. "They may have to go out more and educate and they are going to have to have literature that's clear," he said. "It's going to be a challenge." The firm's retail effort is focused on intermediaries, Ms. Arnold said. "We do a lot of education with financial advisers, not just on our products but also on the economy in general," she said. "We give classes on fixed income and derivatives." E-mail Sue Asci at sasci@investmentnews.com.