Pimco’s New Total Return ETF (TRXT) In The Limelight

The much anticipated arrival of Pimco’s New Total Return ETF (TRXT) went to the next level, as the annual charges were finally disclosed, as reported by Bloomberg:

Pacific Investment Management Co.’s first active exchange-traded fund to be run by Bill Gross will charge annual fees of 0.55 percent, as the firm seeks to expand in the fastest-growing industry segment.

Pimco disclosed the cost for the Pimco Total Return Exchange-Traded Fund in a filing today with the U.S. Securities and Exchange Commission. Newport Beach, California-based Pimco said in April it planned an ETF that will follow a strategy similar to Gross’s top-ranked $242.8 billion Total Return bond mutual fund. The institutional share class of the mutual fund, available in some retirement accounts, carries an expense ratio of 0.46 percent, while the fund’s most widely used retail share classes charge fees ranging from 0.75 percent to 0.85 percent.

Gross, 67, is the most prominent fund manager to offer his investment strategy in an ETF format. Total Return, the world’s largest mutual fund, has climbed an average of 9 percent annually in the past five years to beat 99 percent of peers, according to data compiled by Bloomberg. Pimco, which is diversifying beyond bond mutual funds under Chief Executive Officer Mohamed El-Erian, pushed into ETFs two years ago.

“This has been a very deliberate and thoughtful process,” Don Suskind, head of Pimco’s ETF product-management group, said in an interview. “Through the ETF vehicle, we thought there could be a broader set of investors that can access the Total Return strategy.”

Unlike the Total Return mutual fund, which uses a combination of options, futures and swap agreements, Gross’s ETF cannot invest in such derivatives. The SEC said in March 2010 it wouldn’t approve new ETFs that make significant use of derivatives, pending a review of the practice that is still ongoing. Should the SEC lift the freeze, the Total Return ETF would invest in derivatives, Pimco said in its April filing.

So far, Pimco’s actively managed ETFs have focused on highly liquid markets, such as Treasuries, where other investors mimicking the trades are less likely to affect prices. Fixed- income investments are also more difficult to copy because transactions don’t occur on an open exchange.

Pimco wasn’t very concerned that traders would try to mimic Gross’s trades because his management style involves using a “risk-based approach,” allowing him to use a range of securities to achieve his investments goals, Arnold said.

“It is more of a concern in the active-equity space,” Arnold said.

Pimco Total Return Exchange-Traded Fund will trade under the ticker symbol TRXT, the firm said in April.

Any ETF that replicates a successful mutual fund is a welcome addition to the market place, since it makes it much easier to use with my trend tracking methodology of investing.

However, as always, when new ETFs are being offered, I like to see historical price data for some 9 months, in order to determine the long-term trend and to get a better handle on the momentum figures.

Once that has been determined, and average daily volume has increased to acceptable levels, I will add it to the StatSheet.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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