?Potentially this is monumental. Or it could be a flash in the pan, a bad idea. We are unsure of what will come of this move but what is known is that Bill Gross, the founder and chief investment officer of Pimco, is now officially in the ETF business.
Pacific Investment Management Company LLC, more commonly known as Pimco, is home to the world's largest mutual fund, the Total Return Fund, with assets of $242.7 billion as of June 30, 2011.
And as of Thursday, Pimco launched the ETF version of its Total Return Fund, the Pimco Total Return ETF (TRXT) which aims to mirror the performance of their Total Return Fund (PTTRX).
The headlines are swirling around the news:
Pimco Total Return ETF: A game changer? - CNN Money
Gross' Pimco Total Return ETF: A boon for the nosy - MarketWatch
The Power of PIMCO in an ETF - Fox Business
“It's a giant step for active ETFs. Actively-managed funds are not as popular and it could be an effective way for all well-known managers to move funds around.”
The Day the Mutual Fund Died - The Reformed Broker
“Today marks what I believe will be the shot heard 'round Boston... I will not be investing it nor would I recommend anyone else do so - this is a new vehicle and there is plenty of uncertainty about how closely it will track the mothership in this new format. But if it is successful and can garner AUM - you'll be able to trace back the end of the mutual fund wrapper over the next ten years to this Promethean moment for active ETFs.”
And the buzz across the web is still hot. Pimco has been trending across Twitter, Facebook, and investment forums since the announcement with Bill Gross, obviously, being the focal point of it all.
Gross is the most prominent professional to start an actively managed ETF and the original Total Return Fund which he runs has generated 8.4 percent average annual returns over the past five years, not only making it the world's largest and successful but one of the most consistently growing mutual funds in history. Morningstar Inc. named Gross a fund manager of the decade in 2010.
There is plenty to be excited about for investors as such a popular fund in the PTTRX and Gross' massive value and reputation makes Pimco's newest ETF “a litmus test for the actively-managed ETF space.”
The ETF industry has been desperate for a big move such as this and have been hoping for Pimco's ETF to bring change into the market. Gross says, “The Total Return ETF harnesses Pimco's time-tested investment process and our skills as an active manager, and we believe it signals an important new phase in the development of the ETF marketplace.”
Around 40 actively-managed ETFs represent only 0.5% of the total ETF market and have had difficulty attracting sizable assets and trading volumes. But Gross' new ETF could change all of that.
Earlier today, Gross was quoted with a more defensive tone to the reaction of his new ETF by saying, “Lots of money being printed but very little wealth. Wealth comes from innovation & elbow grease not higher asset prices.”
Gross hopes and expects that the Total Return EFT will mimic the success of his mutual fund to become the largest ETF in the world but others are skeptical.
Echoing Reformed Broker Josh Brown's comments, Standard and Poor's has cautioned all investors from jumping toward the ETF out of the gates. Even though the ETF version is less expensive than its mutual fund counterpart (a gross expense ratio of 0.55% compared to 0.85%) the ETF, is in fact, more expensive than the larger fixed income ETFs in the market.
One analyst, Todd Rosenbluth of S&P Capital IQ ETF, warns that the ETF's holdings are likely to deviate slightly from the mutual fund's holdings since the Securities and Exchange Commission restricts the use of derivatives in new ETFs.
From Pimco's official press release: TRXT is designed to be a diversified portfolio of high quality bonds that is actively managed with the aim of maximizing return and managing risk.
Gross briefly spoke about the new ETF with Bloomberg yesterday (see below) and said it's “really a mom-and-pop type of thing from my standpoint.”
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