PIMCO Total Return: ETF or Mutual-Fund Wrapper? | ETF Trends

PIMCO Total Return ETF (NYSEArca: BOND) has been trading for just about a quarter, and has managed to return about 5.5%. In comparison, the ETF’s predecessor, PIMCO Total Return mutual fund, has gained about 2.4%  for the same time period. Investors and advisers are re-evaluating which strategy to employ in their portfolios using the following key points.

Plenty of advisors and investors use the original mutual fund as a core holding in their investment portfolios. With about a quarters worth of trading underway, BOND has about $1.1 billion in assets, compared to $259 billion in the mutual fund. The performance of BOND has investors furthering their research on which strategy of Bill Gross’s to use in their portfolios. Mitchell Reiner, Chief Operating Officer at Capital Investment Advisors on Forbes, has these four points to consider:

  • Performance: The ETF has outperformed the larger mutual fund simply due to the smaller portfolio, which gives BOND the ability to move in and out of strategies quickly. The only drawback is the exposure to the downside, as well as the upside.  [PIMCO Total Return ETF About to Hit $1 Billion in Assets]
  • Cost: This is a huge factor in the decision making process. The ETF has an expense ratio of 0.55%, and the mutual fund costs about 75 basis points for the average investor. If the ETF continues to outperform, then investors would multiply the differences in expense ratio between funds by the amount invested to determine how long until the investor breaks even.  Trading costs or commissions need to be considered in these calculations, reports Reiner. [Bill Gross and PIMCO’s BOND ETF]
  • Taxes: Unrealized capital gains are a part of owning the mutual fund version of the Total Return Strategy. Also, the purchase price must be considered in contrast to the current price when an investor decides to sell.
  • Structure: Investors must be comfortable with the actively managed ETF structure before they buy. The transparency and liquidity of an active ETF varies greatly from a mutual fund. With a traditional open-end fund, which always transacts at the close-of-day net asset value, there is some certainty that you are paying a market price for the underlying assets. [What is an ETF? – Part 13: True Liquidity]

PIMCO Total Return ETF


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.