“BOND is a very new ETF, but in its short lifetime it has produced some outstanding results,” Morningstar says in an analyst report on the fund. “When BOND was launched with about $100 million in assets, Bill Gross was able to start fresh with a brand-new portfolio that had no legacy positions. The recent outperformance shows how a highly skilled active manager can add tremendous value in a small portfolio.”
The ETF version has outperformed PIMCO Total Return Fund, but I don’t think the mutual fund investors are dumping it for BOND. If the performance spread widens even more in favor of BOND, we could see some migration to the ETF clone. Or the performance could swing the other way with the mutual fund leading the way. It’s difficult to predict.
Gross had a much-publicized tough year in 2011 when PIMCO Total Return Fund underperformed due to some ill-timed bets on U.S. Treasuries.
BOND and PIMCO Total Return Fund use the same investment strategy, except the ETF can’t use derivatives due to regulatory restraints currently in place for ETFs. [Bill Gross Touts PIMCO Total Return ETF’s Active Approach]
“Because the ETF portfolio is very nimble, PIMCO’s best individual bond ideas can be bought with large percentage allocations,” Morningstar says. “Effectively, the ETF is performing like Bill Gross’s ‘best ideas’ list.”
The investment researcher notes BOND has an expense ratio of 0.55% while the institutional share class of PIMCO Total Return Fund charges 0.46% and the A-share class charges 0.90%. “For retail investors who don’t have the ability to buy institutional shares, BOND is a very good deal,” it says.
PIMCO Total Return ETF
Full disclosure: Tom Lydon’s clients own BOND.