PIMCO plans to offer an ETF that will invest primarily in fixed-income securities, its first to be managed by Bill Gross.
PIMCO Total Return Exchange-Traded Fund will buy a combination of U.S. and non-U.S. public and corporate debt, the company said in an SEC filing Wednesday. The fund may hold as much as 10% of its assets in high-yield securities.
It won’t invest in options, futures or swaps.
Under Mohamed El-Erian, PIMCO CEO and co-chief investment officer with Mr. Gross, the money manager has been diversifying beyond bond mutual funds. Two years ago, PIMCO started pushing into ETFs, some of which are actively managed rather than tracking an index. Mr. Gross is best known for running the $236 billion PIMCO Total Return Fund, the world’s biggest mutual fund.
“This is a game changer,” Scott Burns, head of ETF research at Morningstar, said in an interview. “This is the kind of validation that the active ETF industry was looking for.”
Mr. Gross uses a combination of derivatives such as options, futures and swap agreements in the Total Return Fund, which has advanced 8.7% annually in the past five years to beat 99% of peers, according to data compiled by Bloomberg.
The Total Return ETF cannot invest in such securities. The SEC said in March 2010 it wouldn’t approve new ETFs that make significant use of derivatives, pending a review of the practice that is still ongoing. Should the SEC lift the freeze, the Total Return ETF would invest in derivatives, according to Wednesday’s filing.
Mark Porterfield, a spokesman for PIMCO, declined to comment.