For the mutual-fund business, PIMCO filing for an exchange traded fund (ETF) version of Total Return Fund is the equivalent of “May Day” for brokers in 1975 when stock commissions were deregulated, a strategist said Thursday.
“There has been a lot of hesitation from the mutual-fund industry on actively managed ETFs because of the disclosure of trading,” said Dan Weiskopf, head of global ETF strategies at Forefront Capital LLC, in an interview. “PIMCO is saying that it wants to do it and that it can be done.”
PIMCO has filed paperwork with the Securities and Exchange Commission to introduce a Total Return ETF that would be managed by bond guru Bill Gross.
PIMCO has been quietly expanding its ETF product offering since late 2009 and assets under management stand at about $2.8 billion, Weiskopf wrote in a report.
The PIMCO news impacts the industry in several ways. “First, Fidelity remains quiet on its ETF strategy. Can they really afford to sit back?” the strategist asked.
“Second, it sets the tone that a gorilla in the industry is getting aggressive in the actively managed space,” he added. “Third, there are many mutual fund families that have filed for ETFs with the SEC, but most are positioned defensively and not anxiously pushing.”
Weiskopf said news this week of the PIMCO filing is “a shot across the bow to the mutual fund industry.” He noted actively managed mutual funds are being criticized for underperformance, expenses are generally high in mutual funds, the 401(k) industry is facing required fee transparency, and that the disclosure issue for active ETFs “can no longer pass the smell test if PIMCO is willing to do it for their flagship product.”
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