Bond giant PIMCO recently filed the necessary paperwork to launch an actively managed total return bond ETF run by legendary bond trader Bill Gross. This will be an interesting new option for individual investors and investment advisers. From the LA Times:
As required with an ETF, the holdings of the new fund would be disclosed on a daily basis, rather than once a month as Pimco currently does with the conventional mutual fund version of Total Return. But Gross has hardly been shy about telling the world about his portfolio shifts.
Investment research firm and mutual-fund rater Morningstar Inc. lauded Pimco’s decision. “We have advocated for an [ETF of Total Return] under the argument that the fees for retail investors could be lower, the tax efficiency could be higher, and the fund distribution channel is open to all,” analyst Robert Goldsborough wrote on Morningstar’s website on Wednesday.
But he also noted that it wasn’t clear how closely the ETF version of Total Return, which would trade on the New York Stock Exchange’s Arca market, would track the conventional fund’s portfolio.
Pimco’s registration statement for the ETF warns investors that the ETF’s investments and results “are not expected to be the same as those made by other funds for which Pimco acts as an investment adviser, including funds with names, investment objectives and policies similar to” the proposed ETF, Goldsborough said.
“Put another way, Pimco is telling investors that the proposed ETF may be managed differently or trade after the mutual fund makes its trades,” he said. “As a result, those investors who want to jump ship from [Pimco Total Return] in search of a possibly lower fee from the ETF version may see different results.”
The Financial Times adds some background on actively-managed ETFs:
The involvement of such a high-profile investor in an actively traded ETF will attract attention, and assets, to a corner of an industry better known as a cheap and flexible way to make passive investments.
Out of $929bn held in US ETFs at the end of February just $1.3bn, or 0.1 per cent, was actively managed, according to BlackRock.
Several US money managers have registered active ETFs with the Securities and Exchange Commission, but have delayed launch due to the complexities of the product.
While a mutual fund is traded on the basis of its net asset value at the end of each day, an ETF is traded intraday and underlying positions must be disclosed daily: revealing a manager’s strategy far sooner than with a mutual fund.
For instance, the first active ETF to be launched by State Street Global Advisors this year will be quasi-active, using other ETFs for asset allocation.
However, cheap ETFs are regarded as a key threat to traditional active managers. Introduced in 1993, the industry now accounts for 6.4 per cent of total assets managed by US investment companies, according to Aite Group, a consultancy…
Pimco’s new Total Return ETF will hold at least 65 per cent of its assets in US public and private debt, according to a regulatory filing.
It may hold up to 10 per cent in high yield debt and up to a fifth in assets denominated in foreign currencies.
Sources:
“Pimco to launch ‘Total Return’ bond ETF” Tom Petruno. LA Times, 4/20. http://latimesblogs.latimes.com/money_co/2011/04/pimco-total-return-etf-mutual-fund-bonds-bill-gross.html
“Pimco’s new ETF to focus on US debt” Dan McCrum. Financial Times, 4/12. http://www.ft.com/cms/s/0/6a23894a-6ba1-11e0-93f8-00144feab49a,dwp_uuid=d8e9ac2a-30dc-11da-ac1b-00000e2511c8.html#axzz1K7dhaAeB
