PIMCO launched its exchange-traded fund version of PIMCO Total Return in early March, and investors are closely watching to see how Bill Gross’ active management of the ETF fares.
“This is a watershed event. You’re taking the largest actively managed mutual fund and making it more accessible, more transparent and cheaper, which is appealing to many potential investors,” said Todd Rosenbluth, an ETF analyst with Standard & Poor’s Capital IQ. “Smartphones come out on a regular basis, but they don’t get the same buzz as when a new iPhone comes out. There’s a cachet behind this because of the strong brand name and the track record that Bill Gross and his team have established.”
PIMCO Total Return ETF trades under the ticker TRXT on the NYSE Arca and has a gross expense ratio of 0.55%, which is notably cheaper than the 0.85% charged for the more established PIMCO Total Return A (PTTAX), according to Rosenbluth. PTTAX underperformed intermediate investment-grade bond fund peers in the 12 months ended Feb. 24, but has an above-average five- and 10-year annualized record.
Gross will manage the ETF as of its inception, according to PIMCO’s summary prospectus for TRXT. The fund under normal circumstances invests at least 65% of its total assets in a diversified portfolio of fixed income instruments of varying maturities, including bonds issued by both U.S. and non-U.S. public- or private-sector entities. The fund invests primarily in investment-grade debt securities, but may invest up to 10% of its total assets in high-yield securities rated B or higher by Moody’s.
“Yet, we caution investors from flocking to the ETF out of the gates, since its holdings are likely to differ from what you currently find in its sister mutual fund due to restrictions on the use of derivatives and possibly the greater transparency,” Rosenbluth wrote in a note for S&P’s MarketScope Advisor. “In addition, TRXT will be a lot more expensive than the larger fixed income ETFs in the market.”
The bond king himself told Bloomberg in an interview that it bothered him that high brokerage-firm minimums stopped his own mother from buying shares of his mutual fund, which is why he wanted to launch the ETF.