Bill Gross Lite outstripping flagship Total Return mutual fund by almost 300 basis points
It's probably no surprise that the intermediate-term bond fund that has performed the best since March 1 is managed by Bill Gross. But it isn't his flagship Pimco Total Return Fund Ticker:(PTTAX) that's sitting atop the performance charts. Instead, it's the exchange-traded-fund version that's trouncing the competition — including its mutual fund sibling.
Since the Pimco Total Return ETF Ticker:(BOND) was launched on March 1, it has had a return of 4.14%, while the mutual fund version has had a return of 1.17%. The Barclays Aggregate Bond Index, the traditional benchmark for intermediate-term bond funds, has returned 0.03% over the same time period.
The secret to the ETF's success is simple. At a little over $800 million, the ETF is free to invest in Mr. Gross' best ideas — and only those — while the mutual fund, with $258 billion in assets, is forced to invest more broadly.
“It's a high-conviction portfolio,” said Scott Burns, director of ETF research at Morningstar Inc.
The smaller size of the ETF also allows it to trade more opportunistically with single issues, Mr. Burns said. The massive size of the mutual fund forces it to invest through swaps and derivatives to access fixed-income markets without moving the markets.
The ETF also sports a 0.55% expense ratio, 45 basis points cheaper than the retail share class of the mutual fund.
Investors already are taking notice. The Pimco Total Return ETF has grown to $800 million in assets in just over two months.
Despite the ETF's performance, it's probably not tax-efficient to sell your Total Return mutual fund shares in exchange for shares of the ETF. It should give advisers something to think about, however, when investing their next $1 with Mr. Gross.