Clients pulled $1.35 billion from the fund in December, according to Chicago-based research firm Morningstar. Pimco Total Return, managed by Gross out of Newport Beach, California, returned 4.2 percent in 2011, trailing 69 percent of peers, according to data compiled by Bloomberg.

Gross missed a rally in Treasuries as the European debt crisis spurred demand for government-backed debt. Pimco Total Return in December 2009 became the biggest mutual fund in the history of the industry after beating most rivals and attracting a record $50 billion in deposits that year. In the five years through Dec. 30, the fund advanced at an annual rate of 8.1 percent, outperforming 97 percent of competitors.

“Pimco built up some huge expectations and attracted an enormous amount of money from opportunistic investors,” Burton Greenwald, an independent fund consultant in Philadelphia, said today in a telephone interview. “When the performance faltered, it turns out they had some speculative investors who left.”

In an October letter to clients titled “Mea Culpa,” Gross called 2011 a “stinker” of a year. After eliminating Treasuries from the portfolio in February, Gross returned to the securities, bringing government and Treasury debt to 23 percent as of Nov. 30. Treasuries returned 9.8 percent in 2011, the most since 2008, according to Bank of America Merrill Lynch Indexes.

Industry Deposits

Lipper, a Denver-based research firm, said last month that the Pimco Total Return fund (PTTRX) was on track for its first year of redemptions since its inception in 1987. Morningstar started compiling fund redemption records in 1993.

Redemptions from Gross’s Total Return fund represent about 2 percent of the fund’s $240.7 billion in assets at the end of 2010, Morningstar’s data show. Assets rose to about $244 billion at the end of last year, according to the data. Investors pulled money from Pimco Total Return in 2011 even as taxable bond funds attracted $121 billion in deposits last year through Nov. 30, according to Morningstar.

Pimco Chief Executive Officer Mohamed El-Erian, who shares the title of chief investment officer with Gross, said today in a Bloomberg Radio interview that the firm focuses on “long- term” performance rather than one-year numbers.

‘Consistently Outperformed’

“Over a sustained period, Bill has consistently outperformed,” he said on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “In fact, the five-year numbers are great, the 10-year numbers are great.”

Mark Porterfield, a Pimco spokesman, didn’t immediately respond to a request for comment.

Pimco, known for its bond funds for four decades, has sought to reduce its reliance on fixed-income by pushing into stock funds, exchange-traded funds and assets that can preserve their value in rising and falling markets. It hired former U.S. Treasury official Neel Kashkari in December 2009 to oversee an expansion into equity funds.

The fund’s performance last year is Gross’s worst relative to peers since at least 1995, the earliest year for which Bloomberg has rankings for the fund.

To contact the reporter on this story: Christian Baumgaertel in sree at cbaumgaertel@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

http://www.bloomberg.com/news/2012-01-03/pimco-s-flagship-total-return-fund-lost-5-billion-to-withdrawals-in-2011.html

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