Gross Returns to Form as Flagship ETF Doubles

Bill Gross, co-chief investment officer of Pacific Investment Management Co. (PIMCO)
Bloomberg | Getty Images
Bill Gross, co-chief investment officer of Pacific Investment Management Co. (PIMCO)

Pimco has doubled the size of its flagship exchange traded fund in less than two months, hitting $2 billion in assets as performance of the Total Return Fund ETF outpaces the far larger mutual fund on which it is based.

Rapid growth for the ETF, which was launched on March 1 – a widely watched experiment in active management in a market built on passive index following – reflects continued investor preference for bond funds over equities.

An uncertain economic outlook and volatile markets prompted investors to pull $129 billion from U.S. stock market funds in the 12 months to the end of June, according to Morningstar, while pouring $196 billion into bond funds.

Pimco’s success also marks a rebound for Bill Gross, manager of the ETF and the Mutual Fund on which it is based, which now has a record $268 billion under management, up from $253 billion at the start of the year.

Last year Mr Gross, regarded as a guru in fixed income markets for his colourful investment commentaries and 25-year stewardship of the mutual fund, produced one of his worst years for investment performance. He bet the wrong way as the Treasury market rallied and finished the year behind most of his peers.

Now, however, the Total Return Fund ETF is up 6.3 percent since its launch, while the Total Return Mutual Fund has returned 4.2 percent with reinvested dividends over the same period, according to Bloomberg. Mr Gross ranks in the top 5 percent of bond managers this year, according to Morningstar.

The industry is closely watching the progress of the ETF – which, with an annual fee of 0.55 percent, charges 20 basis points less than the retail version of the mutual fund – as many asset managers consider the possibility of their own actively managed vehicles.

The rise of the $1.2 trillion ETF industry has largely come at the expense of actively managed funds that charge higher fees, and the market is dominated by early movers iShares, owned by BlackRock, State Street and Vanguard.

Larry Fink, chief executive of BlackRock, said that Pimco had done a good job, but the main use of ETFs remained beta, passively tracking an index or basket of securities, rather than actively managed alpha. “There is a lot of fanfare about a small portion of the ETF market,” he said.

The swift rise of the ETF may also reflect the ability of a well-performing fund to attract assets quickly in a market where many investors are searching for yield.

DoubleLine Capital, the asset manager led by former TCW star Jeffrey Gundlach, has grown to more than $38 billion of assets under management in two years. With $21 billion of inflows, the group ranks behind only far larger peers Vanguard and Pimco in mutual fund flows in the past 12 months, according to Morningstar.