PIMCO Total Return ETF, mutual fund finally tracking together
By Jason Kephart | September 5, 2012 10:51 am
The PIMCO Total Return ETF's fast start seems to be slowing down.
The exchange-traded fund version of the world's largest mutual fund made headlines when it nearly doubled the performance of the Total Return mutual fund. The ETF has a return of 7.6% since its March 1 debut, compared with the mutual fund's 3% return through Aug. 27.
Most of that outperformance came in the ETF's first three months, however. From March 1 to May 29, it beat the mutual fund by 400 basis points, according to Morningstar Inc. data.
Over the past three months, the ETF and mutual fund have been moving closer together. Since May 29, the ETF returned 2.81%, while the mutual fund returned 2.14%.
The converging returns aren't a surprise for Pacific Investment Management Co. LLC.
Chief operating officer Douglas Hodge said the fund firm expected the two vehicles to track each other closely.
The ETF's early outperformance was largely the result of good timing rather than a difference in strategy, he said. The order in which the securities were bought and the bond market's volatility coincided to give it the early boost.
That means fans probably shouldn't expect the ETF to beat the mutual fund consistently.
An attractive feature of the ETF is its lower cost. Its expense ratio is 55 basis points, 30 fewer than the A shares of the mutual fund. It also trades daily, so there's no $1,000 minimum and no load fee; only transaction fees apply.
PIMCO executives don't care how investors access Bill Gross' Total Return strategy.
“We're completely agnostic when it comes to which vehicle investors choose,” Mr. Hodge said. “We've had tremendous flows into both the ETF and the mutual fund. We think they can grow together.”
Jason Kephart writes for InvestmentNews, a sister publication of Pensions & Investments.