There are hundreds of exchange-traded products at various points in the product development pipeline, but perhaps none of the funds that could debut in 2012 are as highly anticipated as the PIMCO Total Return Exchange-Traded Fund (TRXT). The bond fund giant had previously filed for approval for an ETF version of the world’s largest bond mutual fund, and now seems set to begin trading the product in early March; according to a brief statement on the company’s Web site, Thursday March 1 will be the first day of trading for TRXT.
The new ETF will be actively managed by Bill Gross, PIMCO’s founder and co-Chief Investment Officer. Gross is perhaps the best-known and most respected bond investor in the world, boasting an impressive track record of fixed income management. Launched in 1987, the Total Return Fund has accumulated nearly $250 billion in assets. Since inception, the mutual fund version has generated annual returns of about 8.3%, beating its benchmark by close to 100 basis points per annum. Last year, however, was one of the few disappointing periods for the Total Return mutual fund, which lagged behind its benchmark by nearly 370 basis points.
According to Morningstar, the Total Return Fund trailed nearly 70% of its peers in 2011, the result of missing out on most of the rally in Treasuries (Gross had scaled back exposure to U.S. government bonds in 2011). Morningstar also reported that the Total Return Fund saw outflows of about $5 billion last year–the first year of net withdrawals on records that stretch back to 1993. It’s possible that some of those outflows were put to work in ETFs; fixed income ETPs saw almost $45 billion in inflows last year, including more than $7 billion to products that passively replicate the Total Return Fund’s benchmark (AGG and BND).
PIMCO made its first entrance into the ETF arena in mid-2009 with the 1-3 Year US Treasury Index Fund (TUZ) and has steadily increased its presence ever since. At present PIMCO’s 17 ETFs, which include four actively-managed products, have aggregate assets of about $4 billion (the four active ETFs account for about half of that total). The launch of TRXT should send that total significantly higher in 2012; investor interest in the ETF version is expected to be significant.
TRXT will charge an expense ratio of 0.55%, which is significantly higher than other ETFs in the Total Bond Market ETFdb Category. Schwab’s SCHZ seeks to replicate the Barclays Capital U.S. Aggregate Index, the benchmark that TRXT will seek to beat, with an annual expense ratio of just 0.10%.
Expenses for the Total Return mutual fund vary by share class; the Institutional shares charge just 0.46% annually, while Class B and Class C shares come in considerably higher at 1.60%.
Disclosure: No positions at time of writing.