Bill Gross and PIMCO’s BOND ETF
May 25th 2012 at 7:00am by Tom Lydon
PIMCO Total Return Bond ETF (NYSEArca: BOND) has been the center of attention in the ETF business since the March launch. The fund has outperformed its mutual fund predecessor, which speaks volumes for Bill Gross’s strategy considering this is his first attempt into the exchange traded fund industry.
BOND has already gathered $1 billion in assets in less than three months of trading. [PIMCO ETF Hits $1 Billion]
“As an active ETF, BOND will be required to disclose its portfolio holdings daily. This will be the first time that investors will be able to see PIMCO’s macroeconomic views in real time through the holdings of the ETF. Although the holdings will differ between funds, PIMCO uses a sophisticated trade allocation process to allocate shares of securities to the different funds following the Total Return strategy on a pro-rata basis. This means that the ETF will get new positions at the same time as the mutual fund,” Timothy Strauts wrote in a Morningstar article. [PIMCO puts Actively Managed ETFs in the Spotlight]
The ETF strategy includes a top-down investment process that is led by Bill Gross and the PIMCO investment committee. Together, their secular views on the global economy and interest rate volatility are considered. The PIMCO team forecasts future interest-rate moves, yield-curve movements, and credit trends to guide its portfolio allocation decisions, reports Strauts. [PIMCO Total Return: ETF or Mutual Fund?]
The fact that the fund is navigated by Bill Gross, the most watched bond investor, has helped in the success of attracting assets, about $300 million in one month, into the new ETF. 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, reports Benjamin Shepherd for Seeking Alpha. [PIMCO Paves the Way for More Active Funds]
BOND is a take on the original PIMCO Total Return (PTTAX) mutual fund. The ETF does trade differently, and does not use derivatives, such as swaps or options. This has not been a problem, yet, but time will tell. If market conditions were to turn, the ETF should not suffer due to Gross’s skill with studying macroeconomics.
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.