However, the PIMCO Total Return ETF (NYSEArca: BOND), an actively managed ETF version of PTTRX, does not include futures, options and swaps, according to PIMCO.
The BOND ETF’s exclusion of swaps may have helped the fund outperform the flagship fund. BOND has gained 4.6% year-to-date and is up 5.6% over the past year, whereas PTTRX is up 3.7% so far this year and rose 4.4% over the past year. [Bill Gross ETF Topping Mutual Fund Counterpart]
Derivatives help make it easier to place bets over the short-term, but the contracts also exacerbate potential losses in a weakening market. Additionally, if defaults rise, swap sellers would have to compensate their counterparties for any losses, which can further weigh on bond funds that hold the derivatives.
For more information on bonds, visit our bond ETFs category.
Max Chen contributed to this article. Tom Lydon’s clients own shares of BOND.