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Investors and money managers are weighing whether to follow former Pimco executive Bill Gross to his new post. The Pimco co-founder left abruptly on Friday.

Rarely have so many investors had to make the same decision at the same time: Whether to stick with Pimco Total Return, or jump ship with its longtime skipper, Bill Gross.

Pimco Total Return is the nation’s largest bond fund and a staple in many 401(k) plans.

BrightScope sees the fund in about 27,000 of the 50,000 plans it tracks. “It is the most ubiquitous fund in the 401(k) marketplace,” says Mike Alfred, chief executive of BrightScope.

Once hailed as the “bond king,” Gross resigned abruptly from Pimco on Friday, reportedly after a group of lieutenants said it was him or them. In addition to running its flagship fund, he was co-founder and chief investment officer of the Newport Beach (Orange County) firm.

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Gross, 70, is now running a small bond fund for Janus.

Few managers were more associated with their funds or firms. “It’s like if Steve Jobs was still alive and went to work for Blackberry in a huff,” Morningstar’s Scott Burns said.

If you own an actively managed fund, such as Pimco Total Return, because you believe the manager can beat a lower-cost index fund, and that manager leaves, you must ask yourself whether it makes sense to stay.

“We sold our shares as a result of this,” says Kurt Brouwer, chairman of money management firm Brouwer & Janachowski. “Our philosophy is, when the lead manager of a portfolio moves on, we generally do too.”

His firm was not alone. At the end of August, Pimco Total Return had about $221.6 billion in assets. In September, investors withdrew $23.5 billion from the fund, net of new investments.

Outflow slows

“Of note, the largest daily outflow occurred on the day of Bill Gross’s resignation from the firm, while outflows on the two following days were considerably smaller,” Pimco said in a press release Wednesday.

Investors also pulled about $550 million out of an exchange traded version of Pimco Total Return on Friday and Monday.

Aspiriant, another money management firm, placed the fund on hold, pending a formal review. “We are telling clients who are in the fund to maintain their positions, but we are not currently adding to the fund,” says Dave Grecsek, Aspiriant’s director of research. Aspiriant is comfortable holding the fund, for now, because Pimco has a lot of talent.

To replace Gross, Pimco promoted Daniel Ivascyn to Group Chief Investment Officer and named five chief investment officers. Three of them— Mark Kiesel, Scott Mather and Mihir Worah — will manage Pimco Total Return.

Even if you believe in the new team, if many others don’t, there could be a problem. If a fund has to dump securities in a fire sale to pay off departing shareholders, it could depress the fund’s performance. Pimco says the fund is “well positioned to meet potential redemptions.”

Grecsek agrees — for now. About half of the fund’s assets are in Treasury and other U.S. government securities, “which is one of the most liquid markets in the world,” he says. “The U.S. Treasury market is $6 trillion.”

Morningstar downgraded its rating on Pimco Total Return Monday night from Gold to Bronze. “It’s still a medalist. We recommend it. It’s just that our conviction has dropped,” says Burns, Morningstar’s global director of manager research.

He points out that only 9.5 percent of mutual funds get any color medal, so “it’s still in pretty elite company.”

Two of the men replacing Gross were named named Morningstar Fixed-Income Manager of the Year — Kiesel in 2012 and Ivascyn in 2013.

The fund under Ivascyn — Pimco Income — boasts a much better record than Pimco Total Return. The former is up 12.34 percent a year over the past five years; the latter is up only 4.64 percent.

The benchmark for both funds, the Barclays U.S. Aggregate bond index, was up 4.12 percent.

Pimco Total Return has been losing assets since April 2013, when it peaked at $293 billion. But many trace the fund’s downfall to February 2011, when Gross made a loud, bold and ultimately wrong bet against U.S. Treasurys.

Investors who sell the fund now face a dilemma: what to replace it with.

Spreading investments

Brouwer says he is spreading the proceeds among other bond funds his firm already uses, including DoubleLine Total Return Bond, Western Asset Core Bond and Goldman Sachs Strategic Income. Investors also might consider Vanguard Total Bond Index, which gives you broad participation in the bond market at an ultra-low cost.

Burns says the beneficiary of Pimco outflows might be alternative funds, a sprawling category of newer types such as long-short equity, market-neutral and nontraditional bond funds. “The adviser community has been looking to fund an increase in allocation from fixed-income to alternative funds,” he says.

Investors who own Pimco Total Return in their 401(k) plan might not be able to choose another general bond fund. In that case, it’s probably a good idea to stick with Pimco if you are comfortable with your allocation to bonds.

Jon Chambers, a retirement-plan consultant with SageView Advisory Group, says he put Pimco on his “watchlist” after Mohamed El-Erian abruptly resigned as Pimco’s co-chief investment officer in January. El-Erian had been Gross’ presumed successor.

Chambers is not sure of his next recommendation. “It’s a really difficult call. Pimco has an enormously deep bench,” he says, and Gross “clearly wasn’t going to manage the fund indefinitely.”

Then there were “reports of Gross eccentric behavior,” such as showing up at Morningstar’s Investment conference in sunglasses and comparing himself to Justin Bieber.

This sort of behavior was tolerated, even admired, when Gross was on top of his game.

The new management team “could be an improvement,” Chambers says. “On the flip side, most people that selected Pimco Total Return selected it because of the performance track record that belonged to a sole manager who is no longer there. At a minimum, that requires a close review.”

Chambers will not recommend that his clients follow Gross to his new fund, Janus Unconstrained Bond. “We typically don’t recommend a new manager until we have seen at least three years” of returns, he says.

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