It is 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 (PTTAX) that is sitting atop the performance charts. Instead, the exchange-traded-fund version is trouncing the competition, including its mutual fund sibling.
Mr. Gross is co-founder and chief investment officer of Pacific Investment Management Co. LLC.
SECRET TO ITS SUCCESS
Between when the Pimco Total Return ETF (BOND) was launched March 1 and May 11, it had a return of 4.14%, while the mutual fund version had a return of 1.17%. The Barclays Aggregate Bond Index, the traditional benchmark for intermediate-term-bond funds, returned 0.03% over the same time period.
The secret to the ETF's success is simple. At a little more than $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, he 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 has a 0.55% expense ratio, 45 basis points less 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 probably is not tax-efficient to sell 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.
jkephart@investmentnews.com
