Pimco Total Return ETF: Date set for hotly awaited launch

Jan 17th, 2012 | By | Category: Fixed Income

Californian bond fund giant Pimco has announced the date of what may prove to be a seminal moment for the ETF industry, the launch of the ETF version of the hugely popular Pimco Total Return Fund.

Pimco Total Return ETF

Set to launch on 1 March 2012, many are predicting Bill Gross's Pimco Total Return ETF to be a ‘game changer’ for the active ETF industry.

Set to launch on 1 March 2012 and managed by Pimco founder Bill Gross, many are predicting the fund to be a ‘game changer’ for active ETFs.

Until now, active ETFs have been slow to gather assets, but, if the launch proves a success and shows that active strategies can be successfully rolled out within an ETF wrapper, it is expected that other, previously reluctant, asset managers will follow suit.

Indeed, the fact that Bill Gross and Pimco have put their names to an ETF is a mammoth endorsement for this type of product wrapper and helps dispel much of the scepticism put forward by traditional mutual industry players.

Pimco expects that the fund will eventually be one of the biggest ETFs available. “Here is an opportunity for the small investor to get into a Pimco product,” Gross said at a recent ETF summit. “The Total Return fund is the largest in the world – we expect for the Total Return ETF to be the biggest as well.”

Currently, the three largest bond ETFs are the iShares Barclays TIPS Bond ETF with $22.6 billion, the iShares iBoxx $ Investment Grade Corporate Bond ETF with $17.6 billion, and the Vanguard Total Bond Market ETF with $14.7 billion.

Pimco Total Return Fund

Pimco Total Return Fund (mutual fund) as of 31/12/2011.

Assuming performance is in line with the mutual fund and, of course, the performance of the strategy holds up (the fund incurred significant redemptions last year due to poor performance) the ETF could well receive significant inflows and represent a challenge to the top three. After all, Pimco has pedigree in gathering assets – the parent Pimco Total Return mutual fund has well over $240 billion in AUM.

While performance of the strategy was sub-par last year, primarily due to Gross’s decision to bet against US Treasuries, the fund’s long-term performance has been strong. The fund has outperformed its benchmark, the Barclays Capital US Aggregate Bond Index, for 17 of the 24 years it has been available.

With the ETF (ticker: TRXT) version costing just 0.55% in fees – approximately half the rate charged to the retail share class of the mutual fund – it is bound to attract potential investors. That said, advisers are likely to wait a while to see how well the ETF tracks the mutual fund before committing to invest.

The fund will list on the NYSE.

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