CHICAGO, April 13, 2012 /PRNewswire/ -- Stocks and funds in this article include: PIMCO Total Return ETF (BOND), PIMCO Total Return II Institutional Investor Fund (PMBIX), PIMCO Total Return II P Fund (PTTRX), Vanguard Total Bond Market ETF (BND), Charles Schwab US Aggregate Bond ETF (SCHZ). Eric Dutram looks at how BOND has held up compared to the popular mutual fund version of the product.
Checking In on the PIMCO Total Return ETF written by Eric Dutram of Zacks Investment Research: BOND
The fund has also seen an incredible amount of interest from investors in just its first month on the market. The ETF has already amassed more than $340 million in assets and sees nearly 200,000 shares a day change hands (also read The Best Bond ETF You Have Never Heard Of).
All of this comes despite the fund charging more than what investors see in some of the other classes of the fund as well as other index based bond ETFs. In fact, with an expense ratio of 55 basis points, is nearly five times as pricey as low cost options targeting the space such as BND or SCHZ.
Additionally, there is some concern that BOND will not be able to match its mutual fund counterparts due to a variety of reasons. First, there are worries that front-running—since the ETF has to update holdings on a daily basis-- could be an issue as small traders can move easier into positions than the behemoth total return fund. Also, BOND isn't allowed to use derivative securities in its portfolio, a technique that is often a hallmark of Bill Gross' strategy in the mutual fund versions.
However, despite these very real concerns, the total return ETF has thrived so far in its first month of trading. BOND has actually widely outperformed its cheaper PIMCO Total Return II Institutional Investor Fund (PMBIX) by about 1.1% in the past month while the PIMCO Total Return II P Fund (PTTRX) also underperformed BOND by a similar margin (also see Time To Get Regional With Bond ETFs).
This suggests that at least initially, BOND has been able to live up to the hype and actually provide investors with a better investing experience than the mutual fund counterparts. While there is no telling if this trend will continue, it is encouraging none the less, especially for retail investors who can save a few basis points by switching to the PIMCO Total Return ETF.
The quality performance could also spur more mutual fund companies to create similar alternative ETFs for their fund lineups. After all, if BOND can gain so much in assets and still perform quite well despite the lack of complex derivatives, many are likely to believe that they can do the same as well (see more at the Zacks ETF Center).
Yet although BOND has outperformed so far, investors should note that there are a decent amount of differences between the ETF and the mutual fund versions of the product, at least when looking at the most recent info available…
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros http://at.zacks.com/?id=113
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.