Two months ago, Bill Gross told me that he thought PIMCO Total Return ETF (NYSEArca: BOND) could eventually grow to be the largest ETF. It’s an extremely bold prediction and there are plenty of doubters, but only a month out of the gate, the new ETF is putting up some impressive numbers in terms of performance and bringing in assets.
Launched on March 1, the fund has delivered 219 basis points of alpha, or outperformance relative to its benchmark, based on net asset value, in its first month. The benchmark is the Barclays Capital U.S. Aggregate Index.
Much of the outperformance of PIMCO Total Return ETF so far has been driven by the fund’s overweight position in mortgages. [PIMCO ETF Gathers Nearly $300 Million]
“It is a quarter beyond expectations,” Gross told The Wall Street Journal, referring to the performance of PIMCO Total Return Fund. “If we could do it for three more quarters, I would jump up and down in ecstasy.”
Meanwhile, the ETF has attracted nearly $300 million in one of the fastest asset-gathering starts for an ETF ever – and it’s just getting warmed up. The largest ETF is SPDR S&P 500 (NYSEArca: SPY) with about $106.5 billion in assets.
Investors, advisors watching performance
Through the end of March, there were 82 new ETFs listed year to date. They gathered $1.2 billion according to ConvergEx Group, so the new PIMCO ETF grabbed a significant chunk of these inflows.
Financial advisors who manage model ETF portfolios are allocating a portion of their core bond holdings to PIMCO Total Return ETF. Wirehouses could also add the ETF to model portfolios, which would provide an additional lift. [Gross Favors Shorter Duration, Inflation Protection]
Separately, some advisors and investors are waiting for a quarter or two of performance to see how the ETF version performs against the $250 billion PIMCO Total Return Fund.
The ETF has been trading with tight bid/ask spreads, while demand for the fund created a slight premium of 19 basis points to net asset value as of April 2, according to Morningstar. So far, trading volume is averaging nearly 200,000 shares a day.
PIMCO Total Return ETF should get a marketing boost from switching the ticker from TRXT to the more identifiable BOND, effective today. The ticker had been reserved but became available a few weeks ago.
In the first month of trading, PIMCO Total Return ETF gained 1.64% based on NAV, after fees, compared with a 0.55% loss for the Barclays Capital U.S. Aggregate Index.