PIMCO Total Return ETF (TRXT) Launches - ETF News And Commentary
01 Marzo 2012 - 5:01AM
Zacks
Although numerous active ETFs have hit the market over the past
few years, very few have managed to achieve a solid asset base.
Actively managed bond ETFs though, have seen more interest than
most corners of this market segment as some believe there is a
greater opportunity for manager outperformance in the fixed income
world. As a result, these bond funds command the lion’s share of
assets in the active ETF world including two funds with more than a
billion dollars in assets (read Three Outperforming Active
ETFs).
Yet while this corner of the ETF market has been popular, many
believe that there are more gains to be had, especially considering
that investors haven’t seen very many ‘superstar’ bond fund
managers apply their strategies to the ETF structure. While the
generally lower fees and more rigorous disclosure requirements have
probably kept many of these managers away, the increased popularity
of ETFs among many investors is becoming too hard to ignore for
many issuers. Thanks to this trend, arguably one of the most famous
bond managers in the world has just launched a new active fund;
legendary bond guru Bill Gross and his PIMCO Total Return
ETF (TRXT).
The new fund, which has been in registration with the SEC for
almost a year, looks to give investors access to the strategies
that Gross uses for his ultra-popular PIMCO Total Return
Fund (PTTAX) (PTTRX). However, TRXT will charge investors
55 basis points a year in fees, 30 basis points below the class ‘A’
version that is most widely used by retail investors, but nine
basis points above the institutional class of the product.
These forms of the product have seen strong performances over
the past few years, suggesting that if investors seeking are
seeking an active play on the bond world, this new ETF could be the
way to go (also read Follow Buffett With These Developed Market
Bond ETFs).
Total Return ETF Portfolio
At time of writing, TRXT is heavily exposed to American
securities although it does have some holdings in Canadian and
developed European markets as well. Additionally, it should be
pointed out that the fund has a large short component—equal to
about 26% of the total—while securities that are not rated comprise
about half the fund. In terms of holdings, the fund has 83
securities in its basket, with an effective duration of about 5.2
years. Top individual holdings go to long term FNMA
securities—which make up the top three spots and about 45% of the
fund—while short term U.S. Treasury notes take the fourth spot at
about 13.1% of the portfolio (also read The Best Bond ETF You Have
Never Heard Of).
Key Differences
Investors should also note that the ETF, thanks to a broad hold
by the SEC on funds using derivatives, will not be using swaps or
other similar instruments which are in the mutual fund versions of
the product. While this could change at some point in the future,
there is no telling when—or if—the SEC will lift this ban.
Additionally, like all ETFs on the market today, TRXT will have to
disclose its holdings on a daily basis, a departure from what Gross
has been used to in the mutual fund world with the quarterly
disclosure requirements inherent to that space (read Do You Need A
Floating Rate Bond ETF?).
Thanks to these key differences, the ETF may deviate from the
performance investors see in the mutual fund versions of the fund.
“I think it would be reasonable to anticipate some short-term
divergence between the ETF and Total Return” said Bill Gross of
PIMCO. “However, the similarity of their approaches means that over
longer periods we would expect outcomes to be well in line with
each other.” Also, Gross seems to dismiss the daily disclosure
requirements as a reason to be skeptical of PIMCO’s total return
funds stating that ‘certainly, the market knows what we’re doing
within the first few days of each month, when we release our sector
holdings. So we’re not worried about the ETF structure exposing our
‘secret sauce.’”
Nevertheless, it will be interesting to see if the strong brand
name of PIMCO and their total return fund can carry over into the
ETF world. The company has already seen a great deal of success in
some of its other bond ETFs but is undoubtedly looking to crush
those figures with this incredibly famous strategy. Yet, given some
of the key differences between the ETF and the mutual fund, it
remains to be seen if investors will embrace Gross’ strategy in the
exchange-traded structure or if they will just stick to what they
know in the mutual fund space.
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