For years, PIMCO’s taxable bond Total Return Fund (PTTRX) has been a top-performer in its class, with five-star ratings from both Morningstar and S&P, five-year annualized trailing returns of 8.9%, and a manager, William Gross, widely respected as among one of the top in industry.
However, the minimum initial investment in the PTTRX fund is $1 million, putting it out of reach of most individual investors, who have instead had to settle for the A shares of PIMCO’s retail mutual fund version of the fund, the PIMCO Total Return A fund (PTTAX).
Its returns were similar, with five-year trailing annualized returns of 8.43%, but the expense is 0.91%, more than double the institutional fund’s 0.43% expense ratio.
To target individual investors, who are increasingly turning to exchange-traded funds (ETFs), PIMCO is preparing to launch a Total Return ETF that would track its PIMCO Total Return fund.
The new ETF, which would have a ticker of TRXT, is targeted to launch sometime later this year. According to PIMCO’s regulatory filing with the Securities and Exchange Commission, the expense ratio for the new ETF would be 0.55%. While significantly higher than most ETFs, it would be just over half the expense ratio of the retail PTTAX mutual fund.
The hold-up for the new PIMCO ETF is the SEC, which for a year now has been reviewing the use of derivatives in mutual funds and, especially, ETFs due to concerns that investors may not be aware of the risks involved in their investments in those products.
S&P equities analyst Todd Rosenbluth, in a report on the planned new ETF, writes, “It is not clear to us at S&P Equity Research how much of PTTRX’s strong record is the result of using options, futures and swaps, but a glance at the fund’s recent holdings shows derivatives and leverage, in addition to government and corporate bonds.”
There are a number of competing fixed income ETFs offering bond exposure at lower cost to investors (for example TIP, the iShares Barclays TIPS Bond Fund, with an expense ratio of 0.20%, and BIV, the Vanguard Total Bond Market Index Fund, with an expense ratio of 0.11%).
But S&P’s Rosenbluth predicts that because of Gross’s reputation, and the performance record of PIMCO’s PTTRX fund, it is possible that the new TRXT ETF will lead to “some outflows from PIMCO’s mutual funds,” and that it could also “take some market share from other fixed income ETF providers.”
Register or login for access to this item and much more
All Financial Planning content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access