Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

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


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.

© 2005-2019 - 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