HEAD-TO-HEAD: Jupiter versus Pimco

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Conclusion

In May, Morningstar downgraded the main share class of Pimco’s $65bn Total Return Bond Fund, which was the US asset manager’s flagship fund when it was run by Bill Gross before his acrimonious departure in 2014, from four stars to three.

The downgrade came amid the fund research group’s attempt to differentiate between so-called core funds that overwhelmingly buy investment-grade debt and core-plus funds that take a more flexible approach to investing, often buying more high-yield bonds or structured products.

Pimco’s total return bond fund fell clearly into the former category, as Poole implied.

“It is a conservatively-run fund that gains diversity through finding relative value in the high quality spectrum of US government, municipal and agency securities,” he said.

The Jupiter’s fund’s unconstrained approach means it is less conservative, more able to take concentrated positions and diversify into weaker credits. Although 47% of its portfolio is allocated to AAA-rated bonds, the fund also holds sub-investment grade issues and even an 8% weighting to unrated bonds.

However, its biggest bets tend to be about duration rather than credit, which largely accounts for its inconsistent performance, according to Poole.

Nevertheless, he likes the Jupiter fund and believes it can perform well in the current environment of falling US interest rates.

The Pimco fund also retains its merits as a well-managed and consistent performer.

“The two funds are complementary,” he concluded.

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