Ivascyn's Pimco Income fund surpasses $100 billion despite fee hike: sources

NEW YORK (Reuters) – The Pimco Income Fund (PIMIX), widely seen by investors and analysts as Pacific Investment Management’s new flagship fund, surpassed $100 billion in assets under management this week, even as fees were hiked on Oct. 2, two sources familiar with the matter said Friday.

The Pimco Income fund, overseen by Dan Ivascyn and Alfred Murata, raised its fees by 5 cents per $100 at the beginning of this month for most share classes, bringing expenses for the institutional-class shares to 50 cents per $100.

The increase in fees did not deter investors from Pimco Income, whose assets under management were $70.33 billion at the end of 2016 and $99.02 billion at the end of September.

“It’s been so successful because they’ve put together a portfolio to benefit from a long period of compressing credit spreads and low volatility,” said David Schawel, portfolio manager at New River Investments.

“They’ve bought more complex securities, higher-yielding securities that had more room to tighten. So basically they got the high-level themes correct and had strong security selection on top of that.”

The impressive growth of Pimco Income, the biggest U.S. actively managed bond fund, comes as retail investors gravitate toward low-fee, passively managed index funds.

Pimco Income has been popular because of its stellar long-term returns against a backdrop of investors’ voracious appetite for yield. Pimco Income’s average annual returns in the five years through Oct. 11 were 6.85 percent, better than 99 percent of its Morningstar peer category.

As a result of Pimco Income’s meteoric rise, sales commissions have been lowered, the two sources familiar with the situation said. Pimco declined to comment on the details of the reduction in sales commissions.

“The firm thinks it can gather assets without being as aggressive in promoting the fund,” said Todd Rosenbluth, director of ETF & mutual fund research at CFRA. “Reducing commissions on this fund would help to diversify their asset base to other strategies and not let the firm’s business become overly concentrated in the Pimco Income strategy.”

Indeed, in the fourth quarter of 2014, the Pimco Total Return (PTTRX) strategy, overseen by then Co-Chief Investment Officer Bill Gross, accounted for just over one fourth of the firm’s assets under management, with the Pimco Income and Pimco Investment Grade Corporate Bond (PIGIX) strategies in the single digits, according to Morningstar.

By mid-2017, the split between those three strategies was roughly even at 13 percent to 15 percent, Morningstar noted.

Editing by Chizu Nomiyama and Bernadette Baum

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