Pacific Investment Management Co. is moving the bar for an asset allocation fund co-managed by Rob Arnott. Arnott’s Pimco All Asset All Authority Fund has trailed its benchmark, the S&P 500 Index, since 2013 and has seen its capital decline about 85%. Next month the $4.9 billion multi- strategy fund will adopt a different index that tracks inflation linked Treasuries, known as TIPS, according to a regulatory filing.

The new benchmark — the Bloomberg Barclays US Treasury Inflation-Linked Bond Index — would have been easier for Arnott to beat during the longest bull market in history. The TIPS index generated an average annual return of about 3.7% since the equity run began roughly a decade ago, far less than the 15.9% average for the S&P 500.

Arnott, the founder of Research Affiliates, allocates All Asset All Authority’s capital to other funds managed by Pimco. It has languished, returning an annual average of 0.7% in the last five years, partly because Arnott has been betting against stocks. At the end of June, the fund had almost a quarter of its assets in the Pimco StocksPlus Short Fund, which seeks to profit from a decline in the S&P 500. The benchmark is up about 22% this year with dividends reinvested.

Arnott now sees the TIPS index as a better fit for his fund. Pimco All Asset, a related fund that he also co-manages, has always been benchmarked to a TIPS index. “For a strategy that is more often short U.S. stocks than long, that seeks real returns, and that has a far higher correlation with TIPS than with stocks, TIPS is simply a more relevant benchmark,” Arnott said in an email.

– Miles Weiss, Bloomberg