The elimination of its dividend investment team is the final blow to PIMCO's attempts to build an active equity franchise.
“It more or less finishes the chapter on PIMCO managing fundamental equities internally,” said Jeff Holt, associate director, manager research at Morningstar Inc. in Chicago.
Pacific Investment Management Co. launched active equity investment strategies in 2010 aimed at showing the fixed-income-oriented firm could also compete as an equities investor and cross-sell equity strategies to its fixed-income clients.
Active equity assets under management total less than $1 billion, through one long-short alternatives equity fund, shows data from Morningstar Inc., down from around $10 billion in 2013. Even then, active equity strategies were just a minor fraction of PIMCO's overall assets under management of around $2 trillion.
PIMCO had mostly ended its active equity franchise last year. It liquidated its largest active equity fund, the $886 million PIMCO EqS Pathfinder in May 2015. That move, and the liquidation of a second, smaller active equity fund, sent Virginie Maisonneuve, chief investment officer of global equities, packing in the middle of 2015, just 14 months after she joined the Newport Beach, Calif., firm.
The June 16 announcement that the dividend team would be eliminated and its mutual funds would either be liquidated or subadvised by Research Affiliates LLC comes as no surprise.
Mr. Holt said the dividend team's funds never gained significant assets in its less than five-year history. Morningstar data show that the team's nine mutual funds had combined assets of a little more than $1 billion. And only two of the strategies had institutional accounts, which amounted to just less than a combined $290 million as of March 31, data from eVestment LLC, Marietta, Ga., show.
Performance was also a problem, Mr. Holt said.
“PIMCO's dividend strategies don't shine from a performance perspective,” he said. “They don't have a long history, but over the short time they've been around, returns generally don't look good on an absolute basis or relative to benchmarks and peers.”
The largest of the funds, the $469 million Dividend and Income Builder Fund, had a -12.56% return for the year ended May 31, compared to -5.42% for its benchmark, the MSCI All Country World index, Morningstar data show. For the three years ended May 31, the fund returned an annualized 1.44% compared to the benchmark's 5.2%.
The Dividend and Income Builder fund is one of three dividend team mutual funds that will now be subadvised by Research Affiliates. The six other funds will be liquidated.
Mr. Holt said PIMCO has been gradually expanding its relationship with Research Affiliates, also based in Newport Beach.
Research Affiliates, a firm known for its smart beta index strategies, is now the subadviser for 19 PIMCO funds, he said; 13 are equity funds.
Mr. Holt said the elimination of the dividend team puts PIMCO's focus back on its core fixed-income operations. “It's a matter of PIMCO really focusing on where they have the capabilities and where they really want to distinguish themselves, and in reality, dividend equities isn't one of their core competencies,” he said.
The firm also has $7.7 billion invested in its StocksPLUS funds, enhanced index strategies that use derivatives as a surrogate for equity exposure and aim to achieve alpha through fixed-income exposure, Morningstar said. PIMCO equity strategies managed by Research Affiliates now amount to $12.5 billion, Morningstar data show.
PIMCO said in a statement on June 16 that after the elimination of the dividend team, its assets under management in equity strategies amounted to $40 billion. PIMCO spokesman Michael Reid said the figure includes the Research Affiliate managed funds and the StocksPLUS Funds, and separate accounts that based on those strategies.
Mr. Reid said the only remaining active equity strategy managed by PIMCO is an alternatives vehicle, the EqS Long/Short Fund, that had $881 million as of May 31.