Mutual funds behemoth PIMCO created quite a flutter at the beginning of March when it announced launching the ETF version of its Total Return Fund, now trading under the ticker symbol BOND. The fund had generated a lot of interest from the investor community, securing $340 million in assets in the first month of its launch.
Despite its relatively higher charge – it has an expense ratio of 55 basis points – nearly 200,000 shares change hands daily. There were also reservations that the fund will not be able to replicate the performance of its fabled MF peer, as front running by smaller traders would have put the behemoth at a disadvantage since ETFs are required to update positions on a daily basis. Also Gross couldn’t use derivatives that he has so successfully employed in the mutual fund versions.
BOND has come out blazing though, outperforming both the PIMCO Total Return II P Fund (PTTRX) and PIMCO Total Return II Institutional Investor Fund (PMBIX) by about 1.1% in the past 30 days. At least in the initial days, BOND has managed to meet expectations and have offered a more efficient investment tool to retail investors.
The fund version has a handful of differences, which investors should be aware of. To begin with, the fund has a lower effective duration of 5.28 years compared to 5.68 years for MF products, meaning the ETF shows lower price-interest rate sensitivity.
The fund’s asset holding is also significantly different, emerging market bonds just account for 2 percent of AUM for the ETF while it is 10 percent for PTTRX. The ETF, however, has higher exposure in both Treasuries (56 percent versus 40 percent in MFs) and mortgage securities (up to 72 percent versus 52 percent in MFs).
BOND has outpaced the mutual fund peers in the first month. It’ll be interesting to see if this ETF from PIMCO is able to beat its fabled mutual fund cousins in the future as Bill Gross announces fresh ETF launches soon.
Disclosure: No holdings
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