BOSTON (AP) — It now has six months under its belt. Back in March, star bond trader Bill Gross launched an exchange-traded fund version of the PIMCO Total Return bond mutual fund. It was the most eagerly awaited ETF launch ever, due to Gross' credentials and the strong record of the world's largest mutual fund.
That's not a long time, but the PIMCO Total Return ETF (BOND) is hard to ignore, thanks to its surging out-of-the-gate performance and initial success at attracting cash.
From March 1 through Aug. 27, the ETF returned nearly 8.4 percent — impressive for a fund focusing on bonds, which tend to appreciate in value more slowly than stocks, with less volatility. Performance has been even more eye-catching measured against the Total Return mutual fund (PTTAX), which pursues essentially the same strategy as the ETF. The fund has returned 4.5 percent, nearly four percentage points behind the ETF. Both are outperforming the 2.6 percent return for a broad index of U.S. bonds.
And the ETF and mutual fund are attracting bucket-loads of cash. The ETF's net deposits totaled nearly $2.2 billion from March through July — the most recent month available — according to Morningstar. The mutual fund's intake has been $7 billion.
The ETF had $100 million in assets at its launch and now has $2.5 billion in its coffers, due to new cash as well as investment gains.
"This is kind of a rock-star ETF, so it's reasonable to expect the flows will continue to be strong," says Eric Jacobson, Morningstar's bond fund research director.
Some of that cash could come from investors in the Total Return mutual fund who may be considering a switch to the better-performing ETF. But for anyone considering such a move, the equation isn't simple.
"I would caution against taking the first six months of performance as an indication that the ETF is going to perform better than the mutual fund," Jacobson says. "More than likely, performance differences between the two will even out."
Here are some reasons why, and other factors worth considering:
For the most part, the ETF and mutual fund invest in the same diversified portfolio of bonds, with maturities averaging around five years. But there are differences in how investors buy and sell shares. Mutual funds are priced once a day. When an investor sells, the value is determined by the fund's price at the close of the market. ETFs are priced throughout the trading day and can be traded like stocks. That makes it possible to lock in a preferred price without waiting for a closing price. The PIMCO Total Return ETF is unique among ETFs because it's among a small but growing number of actively managed ETFs that seek to outperform the market. Nearly all other ETFs seek to match an index.
SAME MANAGER, BUT....
The Total Return fund and the ETF are both run by Gross, a three-time winner of Morningstar's bond manager of the year title, in addition to honors covering the last decade. Total Return has posted an average annualized return of 6.4 percent over the past 10-years, placing it among the top 13 percent in its category.