Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

PIMCO Total Return Bond ETF (NYSE: BOND): Bill Gross’ Foray into ETFs Living Up to Hype

Interest-Rates / Exchange Traded Funds Apr 17, 2012 - 12:01 PM GMT

By: Benjamin_Shepherd

Interest-Rates

I’m usually skeptical of exchange-traded fund (ETF) launches that are preceded by a lot of hype; generally, the harder a company works to promote a new exchange-traded product, the less value there is to it. And for the better part of the month leading up to its launch, PIMCO Total Return Bond ETF (NYSE: BOND) garnered quite a bit of attention for being bond maven Bill Gross’s inaugural effort in the ETF space.


 

But the fund has lived up to its hype by gathering more than $300 million in assets since its launch on March 1 and is already trading an average of about 200,000 shares daily. I can’t think of a single new ETF that has gained that much momentum in its first month of trading.

That fact that it’s actively managed by Bill Gross has likely played a huge role in its success attracting assets. While there are quite a few star managers in the fund business, no other bond fund manager receives as much attention as he does. There are few days when his name doesn’t appear in print or on television, and his view of the economy can move both the stock and bond markets. Gross earned his reputation with a more than 40-year career during which he’s called some significant turns in the market. In 2005, for example, Gross predicted that the crisis in the subprime mortgage market would eventually send the global financial system reeling.

Gross runs the largest mutual fund in the world; his flagship PIMCO Total Return (PTTAX) has more than $250 billion in assets. Those assets have largely been gathered on the strength of his long-term track record, with his fund turning in a 6.5 percent trailing 10-year return and an 8.1 percent trailing 5-year return. As a result, the fund consistently ranks near the top of all bond funds for long-term performance.

But the mutual fund has a serious drawback: cost. The fund has an annual expense ratio of 0.90 percent and retail investors who don’t have access to the institutional share class can pay a sales load as high as 3.75 percent.

PIMCO Total Return Bond ETF is essentially run as a separate share class of the flagship mutual fund. However, there are a few differences in how the ETF is managed, the most notable of which is that it can’t use derivatives. That hasn’t proved a hindrance thus far, as the ETF has outperformed the mutual fund by about 150 basis points as well as its Barclays Aggregate Bond Index benchmark by about 170 basis points.

That relative outperformance should persist over the long term, even when the ETF inevitably suffers the occasional off month, particularly when it could have benefited from the derivative strategies that Gross is precluded from employing. Nevertheless, if Gross is correct with his macro calls, he should still be able to produce substantial gains even in the absence of derivatives.

While the ETF’s 0.55 percent annual expense ratio is more expensive than the mutual fund’s institutional shares, it’s substantially cheaper than the fund’s retail share class, especially when the sales charge is also taken into account.

The ETF also offers greater transparency. While Gross has never been particularly secretive--it’s hard not to broadcast your strategy when you’re quoted in the media almost daily--his mutual fund has largely adhered to the Securities and Exchange Commission’s (SEC) mandated schedule of portfolio disclosure, which means information about the fund’s holdings is already dated by the time it’s available to the public. But like other ETFs, PIMCO Total Return Bond ETF discloses its holdings to the public on a daily basis.

With greater transparency, lower relative costs and a solid track record built by a star manager, PIMCO Total Return Bond ETF could reach at least $1 billion in assets by the end of this year.

The one caveat is that not even Bill Gross is infallible. As one example, he famously eschewed Treasury bonds last year based on his belief that they would get crushed following the end of the Fed’s second round of quantitative easing. As a result, he missed out on one of 2011’s best-performing asset classes.

Thankfully for Gross, he’s rarely wrong otherwise, so last year’s miss can be forgiven. And this year, he’s betting more on the debt of developing countries such as the BRICs (Brazil, Russia, India and China). Although emerging market nations generally have stronger balance sheets than their developed-world peers, their debt offers higher yields. And according to the ETF’s portfolio disclosures, Gross has also been betting heavily on agency mortgage bonds, which have been outperforming in recent months as the pace of foreclosures slackens.

Assuming the current global status quo is maintained or even improves, Gross should produce an impressive 2012. Check out my article, An ETF Broadcasts PIMCO’s Latest Move, for more analysis on PIMCO Total Return ETF.

© 2011 Copyright Benjamin Shepherd - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in