Star fund managers are hard to come by in the ETF market, but that’s about to change. The PIMCO Total Return ETF, managed by none other than Bill Gross, will launch later this year on the NYSE Arca under the ticker symbol TRXT.
According to PIMCO’s regulatory filing, TRXT will have an expense ratio of 0.55 percent, which is more expensive than institutional share class for the PIMCO Total Return (PTTRX), but still lower than retail versions of the same fund.
The SEC has been reviewing the use of derivatives inside mutual funds and ETFs, so TRXT won’t be able to imitate PTTRX’s strategy until a final decision by the agency is made. “It is not clear to us how much of PTTRX’s strong record is the result of using options, futures and swaps, but a glance at the fund’s recent holdings shows derivatives and leverage in addition to government and corporate bonds,” states S&P Equity Research.
TRXT’s holding disclosures will be daily compared to the quarterly data that open-end mutual fund investors receive from PTTRX and similar mutual funds.
The launch of an actively managed ETF by one of the biggest names in bond investing will be closely watched. It will definitely lend more credibility to the idea of active ETFs and may likewise encourage other star fund managers to follow Gross’ lead.
What effect will PIMCO’s TRXT launch have on the company’s core mutual fund business?
“Given that TRXT will be less expensive and more accessible for fixed income investors than PTTAX and other classes of this fund, we believe it is possible that PIMCO will experience some outflows from their mutual funds,” said Todd Rosenbluth, S&P mutual fund analyst. “However, we believe the launching of a fixed income ETF could enable PIMCO to take some market share from other fixed income ETF providers, despite the relatively high expense ratio, given Gross’s strong track record and the relatively low duration.”