PIMCO'S TOTAL RETURN FUND SUFFERS $7.5 BILLION OUTFLOW IN JULY 2013

PIMCO'S TOTAL RETURN FUND SUFFERS $7.5 BILLION OUTFLOW IN JULY 2013

By Sam Forgione and Jennifer Ablan, 08/02/13

NEW YORK (Reuters) - The Pimco Total Return Fund, the world's largest mutual fund, suffered an outflow of $7.5 billion in July, following record outflows in June, estimated data from Morningstar showed on Friday.

The July number, which was down from outflows of $9.6 billion in June, according to Morningstar, marked the third straight month of withdrawals from the fund, which is managed by Bill Gross and now has roughly $262 billion in assets.

Investors have pulled about $18.4 billion from Pimco Total Return over the past three months. The combined three-month outflows are the biggest since Morningstar began tracking the fund in 1993.

Investors have pulled cash out of bond funds this year as rising interest rates have made fixed-income securities vulnerable to price losses. Gross and his co-chief investment officer at Pimco, Mohamed El-Erian, are watched closely because they've made money by anticipating big moves in the economy and interest rates way before other investors.

But Pimco Total Return, which is the flagship bond fund of the Newport Beach, California-based firm, is down 3.08 percent this year, above only 25 percent of peers, Morningstar said.

Some of the pain was cushioned last month. The fund posted returns of 0.49 percent in July after stumbling 2.64 percent in June, which was its weakest monthly performance since the financial crisis in September 2008.

The fund's performance turned positive as fears of rising U.S. interest rates eased, helping Pimco's overall exposure to U.S. Treasuries and government-related holdings.

According to the latest available data, the Total Return Fund increased its holdings of Treasury securities to 38 percent in June from 37 percent in May during a broad selloff in the bond market.

Federal Reserve Chairman Ben Bernanke said in July that the central bank needed to keep its bond buying in place given low inflation and an unemployment rate that may be overstating the health of the labor market.

Friday, the Labor Department reported a disappointing employment report, with 162,000 new jobs created in July.

Remarks by El-Erian suggested that he sees the data as making the Fed more cautious about reducing its bond purchases. The U.S. central bank's bond buying has helped support Treasury prices.

"Today's numbers complicate the already intricate policy task facing the Fed," El-Erian said. "They should also serve as a caution to Congress to avoid additional self-manufactured headwinds to the economy on account of the upcoming debt ceiling and budget discussions."

Pimco, a unit of European financial services company Allianz SE, had $1.97 trillion in assets as of June 30, according to the firm's website.

Investors pulled a record $14.5 billion from Pimco's U.S. mutual funds in June, Morningstar has said. Investors also pulled about $137 million from the Pimco Total Return Exchange-Traded Fund in July, after a June outflow of $512 million. The ETF, which now has roughly $4.2 billion in assets, is down 2.4 percent this year.

The actively managed ETF, which was launched in February 2012, is designed to mimic the strategy of Pimco's flagship bond fund.

The DoubleLine Total Return Bond Fund, a competitor to the Pimco fund run by Jeffrey Gundlach, suffered an outflow of $580 million in July after its first-ever monthly outflow, of $1.2 billion, in June, Morningstar data showed.

The roughly $38 billion fund, which was launched in April 2010, is down 0.93 percent for the year, ahead of 93 percent of peers, Morningstar said. The fund fell 0.22 percent in July, an improvement after declining 1.74 percent in June.

The Los Angeles-based DoubleLine Capital LP had over $55 billion in assets as of March 31, the firm's website said.

(Reporting by Sam Forgione and Jennifer Ablan; Editing by Leslie Adler)