Mutual Funds Exposed! (Part 5 of 6 – Great Managers Don’t Stay)

If a star money manager leaves what ramifications does that have for the investors that stay? How many of you have ever heard of Bill Gross?  Bill Gross helped build PIMCO into a $2 Trillion firm. Bill left PIMCO to join Janus Funds in 2014. if you own Pimco during this time, you most likely felt the Pimco boat rocking. At that time analysts were saying that up the 20% of PIMCO’s assets could leave the firm.

If PIMCO has almost $2 Trillion dollars in assets and 20% of those assets leave – that is $400 Billion exiting all of those funds – talk about phantom taxes taking a bite out of your return. This isn’t just a domestic problem. Investors in Europe pulled $80 billion from PIMCO on the heels of Bill Gross’s sudden departure.  These things are felt around the world but still affect you through phantom taxes. These taxes can greatly decrease your rate of return.

Analyst said that Pimco could withstand an asset drain of up to $350 billion before the portfolio management operations could be affected. “Morningstar said that this would have affected the firm’s bonus pool, which would then lead to key personnel departures, or force PIMCO to reduce staff. Such a move have would likely disrupted the firms investment process, which would have affected investment performance, and so on…”

The trickle down effect when owning mutual funds has deep reaching ramifications. If something happens while you own a mutual fund, you will most likely feel it.