Bill Gross is hoping PIMCO Total Return ETF can someday grow to become the world’s largest exchange traded fund by assets after it lists in March.
PIMCO says it plans to roll out an ETF version of Total Return Fund on March 1. Actively managed ETFs haven’t been a big hit so far, but Gross obviously brings a sterling reputation and an enviable track record to active ETFs. [PIMCO Says Total Return ETF to Launch in March]
PIMCO Total Return Fund holds about $244 billion in assets spread across various share classes. The vaunted fund, which is overseen by bond guru Gross, will celebrate its 25th anniversary later this year.
Even with the fund’s well-documented missteps in 2011, Total Return Fund has handily beaten its benchmark and most peers over longer time periods.
“Despite a fine 2010 showing and first-half 2011 gains that edged out the intermediate-bond category average, some investors and pundits have talked as if this fund has lost its edge,” Morningstar’s Eric Jacobson writes in an analyst profile of the fund. Shunning Treasury bonds in the first half of the year and lightening up on interest-rate exposure turned out to be mistakes, he wrote.
“The portfolio’s 1.1% third-quarter loss has been comparatively abysmal and has dragged its year-to-date return to the group’s bottom decile–but it’s not catastrophic. The fund still boasts a gain for the year, and some of the best three-, five-, 10-, and 15-year gains for any of its kind,” Jacobson added.
Gross, speaking at the recent 2012 ETF Virtual Summit, said an ETF wrapper for Total Return Fund is something he’s wanted to see happen.
ETFs have “advantages” and allow small investors to easily access PIMCO strategies, he said. PIMCO over the summer said Total Return ETF will charge a management fee of 0.55%. [PIMCO Discloses Fees for Total Return ETF]
“We’re proud of our relationships with retail firms in terms of distribution,” Gross said. Total Return Fund is the world’s largest mutual fund and Gross expects the same for the ETF. That title currency belongs to the roughly $95 billion SPDR S&P 500 ETF (NYSEArca: SPY)
“A big part of the cloning of Total Return likely has to do with financial advisors who are increasingly turning to lower-cost ETFs to build client portfolios,” reports Murray Coleman at Barron’s. “But there will be some differences between the two, one of which is that the ETF version won’t use options, swaps or futures. That could change if the SEC lifts its current ban against new ETFs trading in derivatives.”
When asked about his views on the markets, Gross said PIMCO sees the global economy slowing as banks and consumers continue to delever after the financial crisis. Countries in Europe and other parts of the world have too much debt and are also delevering as governments try to balance budgets, the fund manager said.
Meanwhile, Europe is to be avoided because of all the uncertainty and risk associated with the debt crisis. He likes the U.S. and emerging markets with relatively cleaner balance sheets, pointing specifically to Brazil, Mexico and Canada.
Above all, investors want to be in relatively safe assets in 2012 and capital preservation should be the focus. “It’s not a double-digit year,” Gross said. “It’s a 2% to 5% year.”
PIMCO Total Return Fund
Full disclosure: Tom Lydon’s clients currently own SPY.