Pacific Investment Management Co.’s 13-month-old Pimco Total Return Exchange-Traded Fund (BOND) exchange-traded fund is attracting more cash than the firm’s flagship Total Return mutual fund, as investors join Bill Gross in preferring ETFs for bond investing.
About $263 million was funneled into Pimco’s $4.3 billion Total Return ETF in March, compared with $32 million for the company's $289 billion Total Return mutual fund, the lowest monthly volume for the world’s biggest bond fund since December 2011, according to data compiled by Bloomberg. The ETF returned 1.2 percent in the first quarter versus 0.6 percent for the 25-year-old mutual fund, the world’s largest.
The outperformance underscores the rising influence of ETFs as investors seek faster ways to slip in and out of the bond market for an edge with returns dwindling after average annual gains of 6.3 percent in the past four years. After following BlackRock Inc. and Vanguard Group Inc. into fixed-income exchange-traded products, Newport Beach, Calif.-based Pimco is gaining ground as the industry swells to $321.2 billion.
“People like what ETFs offer in terms of intraday liquidity, cost efficiency and transparency,” said Deborah Fuhr, the former ETF research head at BlackRock who helped found London-based research firm ETFGI last year. “Bill Gross is a portfolio manager who is well-known and respected. The performance of the ETF, which has done better than the mutual fund, is an important part of the story.”
‘On Board’
The Total Return ETF, selected by Pimco co-founder Gross in January as his top pick for a bond fund this year, amassed $4.2 billion of deposits in the 12 months ended in February, according to ETFGI. That’s almost 10 percent of the $43.1 billion of flows into the 166 fixed-income exchange-traded funds and products in the U.S.
More than a decade after BlackRock created the first fixed- income ETF, investors from hedge funds to retirees are increasingly turning to the products, which have shares that trade like stocks on exchanges, as bond-trading volumes fail to keep pace with record issuance.
“ETFs are the future of asset management,” said Timothy Strauts, an ETF analyst at Morningstar Inc. in Chicago. “Gross being on board with ETFs, I see that as him seeing the light.”
ETFs ‘Embraced’
Pimco’s Total Return ETF has returned 13.4 percent since it started trading on March 1, 2012, more than 5 percentage points more than the 8.3 percent gain for its mutual fund. With lower volatility, the ETF’s risk-adjusted returns of 4.6 percent compare with 2.3 percent for the mutual fund, Bloomberg data show.