It had to happen eventually. Pimco’s widely accepted and top performing Total Return Fund will be soon available as an ETF, according to the WSJs (subscription required) “ETFs to Get a Pimco Star:”
Pacific Investment Management Co. plans to launch an actively managed version of its popular Pimco Total Return Fund overseen by founder Bill Gross, a move that may well turn the tide for actively managed ETFs.
In a Securities and Exchange Commission filing, the California bond fund giant applied to launch Pimco Total Return ETF, which will invest 65% of its assets in a diversified portfolio of bonds, primarily investment-grade debt of varying maturities.
The launch of an active ETF version of the $236 billion Pimco Total Return fund, the world’s largest fund, shows that most active strategies can be turned into ETFs and will likely be followed by more entrants among big-name active managers.
“It’s a game changer,” said Scott Burns, director of ETF analysis at Morningstar Inc. “This is the validation that this corner of the ETF industry has been waiting for. A large, prominent fund manager with a strategy that is the largest out there—anyone who says it can’t be done and won’t be done—those excuses are completely blown up right now.”
Low-cost ETFs can be bought and sold on the stock market and must disclose their holdings daily. Fears that investors would buy ahead of active managers’ purchases if managers adopted such transparency has stopped some fund operators from launching active versions of their most popular funds.
…
In the past five years, the Total Return Fund has risen nearly 8.2%, while its peers have returned 5.7% on average, according to Morningstar.
Pimco didn’t disclose the new ETF’s expense ratio in its filing. The cost is likely to be lower than that of its Pimco Total Return Fund sister. Total Return charges a net expense ratio of 0.90% on retail shares and 0.46% on institutional shares, according to Morningstar.
Pimco said it can’t comment during the fund’s registration period.
Robert Goldsborough, an ETF analyst at Morningstar, said Pimco’s filing alerts investors that the proposed ETF’s investments and results “are not expected to be the same as those made by other funds for which Pimco acts as an investment adviser.”
Pimco is telling investors that the proposed ETF may be managed differently or trade after the mutual fund makes its trades, he said in an analysis. Investors who want to jump ship from the Total Return Fund in search of a possibly lower fee from the ETF version may see different results, Mr. Goldsborough said.
Pimco already has four ETFs—Enhanced Short Maturity Fund, which last month became the first active ETF to cross $1 billion in assets; the $83 million Intermediate Municipal Bond Strategy Fund; the $28 million Short Term Municipal Bond Strategy Fund; and the $30 million Build America Bond Strategy Fund, launched last year.
A heavy hitter like Pimco looking for even more ETF exposure can only be of benefit to the investing public. Surely, fees will have to be lower with Pimco’s new Total Return ETF compared to its mutual fund cousin, but for most investors, performance will be the issue.
Only time will tell, if they are similar in that respect as well. Even if this new ETF intrigues you, it’s best to let some time pass to better compare trends along with volume and bid/ask spreads.
Contact Ulli