The exchange traded fund version of PIMCO Total Return could force active mutual funds to cut fees to keep up with the lower costs of ETFs, according to a report Monday.
“Should the ETF version of Bill Gross’s PIMCO Total Return prove a success in attracting investors, the pressure will build on competitors to follow suit,” The Wall Street Journal reported.
“This is an unpleasant prospect for companies without PIMCO’s tremendous scale. It means entering a business with typically lower profit margins than traditional funds because of the low fees common among ETFs,” the newspaper said.
The PIMCO ETF is expected to launch March 1 and will allow any investor with a brokerage account to tap into the strategies of Gross, one of the world’s most respected bond fund managers. The ETF clone of PIMCO Total Return will have an expense ratio of 0.55%, according to the prospectus. [Will PIMCO ETF Mark Beginning of the End for Mutual Funds?]
The growing popularity of ETFs is also threatening so-called 12b-1 fees that mutual funds charge to cover sales and marketing costs, the WSJ reports.
“For fund companies still addicted to using 12b-1 money to entice advisers to sell their funds, launching an ETF would mean going cold turkey,” according to the article.
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