The exchange traded fund space is dominated by passive indexing strategies. With the launch of the PIMCO Total Return ETF (NYSEArca: BOND), the Pacific Investment Management Company has kick-started the actively managed ETF arena.
Active ETFs represent an opportunity for firms that missed out on the original ETF rush for passive, or beta, strategies, which are dominated by companies like iShares, State Street Global Advisors and Vanguard. [ETFs and Mutual Funds Can Work Together]
Successful active ETFs will require active management teams with a solid track record and a well-known brand name to back the fund up, both of which PIMCO has.
BOND, the ETF version of the flagship $270 billion PIMCO Total Return Fund (PTTAX), the world’s largest mutual fund, has garnered over $2 billion since it began trading in March.
“The issue was, are investors choosing ETFs because they like passive investing or because of all the other positive attributes of ETFs?” Douglas Hodge, PIMCO’s chief operating officer, said in an InvestmentNews article. “I think we’ve proven that they’re choosing the vehicle. It’s not about active versus passive. As long as you can deliver performance, that is what investors want.”
The BOND ETF has outperformed the Barclays Aggregate bond Index by more than 6.0% and its mutual fund counterpart by 4.0% since its inception.
Ryan Ely, an investment advisor at Capital Investment Advisors LLC, though, cautions there is no guarantee that the ETF would continue to outperform the flagship fund. Hodge attributes the current outperformance to the selection of securities and general volatility, but over the long term, he expects the two funds to generate the same performance. [PIMCO Bets on Growth in ETF Space]
PIMCO has also filed the initial paper work for ETF versions of the Real Return Fund (PRTNX), Low Duration Fund (PTLAX) and Diversified Income Fund (PDVAX).
For more information on active ETFs, visit our actively managed ETFs category.
Max Chen 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.