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Pimco ETF Rakes In Cash Despite Continued Stock Rally

Investors have flocked to Pimco's new bond ETF, which has raked in the second-most assets of any such fund during the first quarter.

Caroline Purser | Photographer's Choice | Getty Images

Though trading for just a month, the Pimco Total Return Exchange-Traded Fund took in $264 million since launching March 1, according to data from ConvergEx and XTF Rating Service.

The only more popular ETF for the period was the iShares Barclays U.S. Treasury Bond Fund , whose debut was equally impressive as it attracted $297 million since coming on the market Feb. 24.

Neither fund has been particularly impressive in terms of returns, at least compared to stocks. But both have been attractive as stores of capital while investors remain wary of the equity bull market.

Despite a 25 percent-plus stock rallyoff the October lows, investors continue to plow far more money into bond funds than equity offerings, be they ETFs or mutual funds. The Treasury and Pimco funds, by way of example, alone took in about half the total $1.1 billion in new 2012 money to the $1.2 trillion ETF industry.

"This quarter's money flows into newly launched exchange-traded products reveals a strong risk-off investment bias," said Nicholas Colas, chief market strategist at ConvergEx.

It is not, however, for lack of trying from the ETF industry.

So far this year, there have been 82 new products brought to market, with 52 of them focused on stocks. Just 16 are fixed income funds — even though that's where most of the money is going — while nine target commodities and the rest are multi-asset class.

Those 16 bond funds have brought in $745 million in investor money, while the 52 stock funds managed to draw a comparatively meager $310 million, Colas said.

The news has been the same for mutual funds.

Over the past week, equity funds lost another $1.08 billion, while bond mutual funds attracted $5.66 billion, almost all of which went to taxable funds. Hybrid stock-and-bond funds gained $1.82 billion, according to the Investment Company Institute.

Investors pulled $17.16 billion out of zero-yielding money market funds but again appeared loathe to put it at risk, funneling it instead to the safety of bond funds even though they have greatly underperformed stock funds all year.

Pimco brought its signature Total Return offering— the world's largest bond fund — to the ETF space in hopes of participating in a market area that has been pulling in, on a nearly dollar-to-dollar ratio, as much money as the much larger mutual fund space has been losing.

"Should you desert bonds simply because they may return 4 percent as opposed to 10 percent? I hope not," Pimco co-CEO Bill Gross told clients in his most recent investor newsletter. "Pimco's potential alpha generation and the stability of bonds remain critical components of an investment portfolio."

Indeed, it seems that no matter how high the equity markets soar, investors want to keep their feet on the ground.

"Investors have an ever-broader menu at the ETF cafe but they seem resolutely firm in their desire for a turkey club and a cup of coffee," Colas said. "They aren't jumping all over the leveraged products, the short-biased offerings, or other esoteric categories...Just because they are out there doesn't mean they are getting the biggest chunk of the flows."

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