PIMCO Total Return ETF

When it comes to investment decisions, costs matter. In comparing the the PIMCO Total Return Fund and the exchange traded fund, the average retail investor may be better suited with the low-cost ETF version, Morningstar fund analysts say.

The PIMCO Total Return ETF (NYSEArca: BOND) has a 0.55% expense ratio, whereas the PIMCO Total Return A-Shares (PTTAX) has a 0.85% expense ratio. The PIMCO Total Return Institutional Share (PTTRX), though, has a 0.46% expense ratio, but it is limited to 401(k)s and other investment advisory platforms.

“I would look for the lowest-cost share class,” Tim Strauts, Morningstar fund analyst, said. “So if you can get access to the institutional shares, with an expense ratio of 46 basis points, that may be the preferred option. The ETF’s expense ratio is 0.55%. So it’s a little bit higher. But if you only have access to say, the [mutual fund’s]A shares, then I would look at maybe the ETF as maybe the better solution at a lower cost point.”

Eric Jacobson, Morningstar fund analyst, also suggests looking for the institutional share class version first, but if you don’t have access, “the ETF is probably a great way to go.”

So far, the mutual fund has underperformed the ETF by 5% since the ETF began trading a little over a year ago. However, the performance has been narrowing as the ETF grew to over $4.5 billion in assets.

“The main reason we’ve seen the difference is that when the ETF was launched, it was launched with just $100 million in the portfolio,” Strauts added. “So, with the $100 million, PIMCO was able to implement all its best ideas in that portfolio. . . Since then, the ETF has now grown to over $4.5 billion. So, it’s no longer quite of a best-ideas portfolio.”