WAMCO makes bid to regain 'King of Bonds' crown

Stephen Walsh WAMCO
Stephen Walsh, WAMCO chief investment officer, is targeting platforms that he said could be suffering from 'PIMCO fatigue.'

Western Asset Management Co. has rebranded itself all in a bid to reclaim its place as the top fixed-income manager.

In June, Western Asset, the fixed-income subsidiary of Legg Mason (LM) Inc. (LM), said that it will drop its parent company from the name of its mutual funds. In March, the company, which had previously offered its shares only to institutions, launched retail shares.

“The branding was long overdue,” said Stephen Walsh, chief investment officer.

“The Western Asset franchise is much better known in fixed income than Legg Mason. The Legg Mason brand was associated with being very positive, thanks to Bill Miller,” Mr. Walsh said.

That positive has faded in light of Mr. Miller's highly publicized performance struggles, however.

The shift is “going to let them build their own identity,” Geoffrey Bobroff, a mutual fund industry consultant, said of the rebranding.

In 2006, WAMCO was on top of the fixed-income world. With $521 billion in fixed-income assets under management, it had surpassed Pacific Investment Management Co. LLC, as the largest bond manager in the world, prompting BusinessWeek magazine to call it the “King of Bonds.”

But then the wheels came off. WAMCO had underestimated the risks heading into the financial crisis, and performance suffered.

In 2007, the flagship Western Asset Core Bond Fund trailed the Barclays Aggregate Bond index by 500 basis points, and in 2008, it trailed by 1,600 basis points.

So instead of rushing into the retail market, WAMCO retooled the way it looks at risk. It hired a new head of credit and established a second risk committee.

The moves have paid off. Since 2009, the flagship fund has rebounded dramatically.

In fact, it has trounced not only its benchmark but also the PIMCO Total Return Fund. A $10,000 investment in Western's Core Bond Fund at the start of 2009 would be worth about $15,753 today, while the same investment in PIMCO's flagship fund would be worth $13,876.

Its other funds have had similar turnarounds.

“The performance has really stabilized,” said Michelle Canavan, fund analyst at Morningstar Inc., Chicago.

The struggles of 2008 did make WAMCO largely miss out on investors' rush to bond funds. Western's assets have fallen from that 2006 peak to $446 billion.

By contrast, PIMCO's assets have jumped to more than $1.77 trillion.

Mr. Walsh is looking to turn PIMCO's dominance into an advantage for Western. WAMCO is targeting platforms that he said could be suffering from “PIMCO fatigue.”

That might be, but Western has its work cut out for it to unseat PIMCO.

PIMCO Total Return has outperformed the Barclays index by more than 300 basis points this year, and the actively managed exchange-traded-fund version has done even better. The PIMCO Total Return ETF has beaten the index by more than 500 basis points.

Meanwhile, the current “King of Bonds,” Jeffrey Gundlach, shows no sign of slowing down. His DoubleLine Total Return Bond Fund led all funds in June with $2.1 billion of inflows.

For the 12-month period through June, the fund's $18.1 billion of inflows led all mutual funds as well.

Jason Kephart writes for InvestmentNews, a sister publication of Pensions & Investments.