Pimco Total Return ETF: Not A Big Deal
Pimco, the world's largest bond manager, said on Tuesday it will introduce an ETF equivalent to the Total Return Fund, the bond fund managed by Bill Gross, on March 1. The eagerly awaited ETF will trade under the ticker "TRXT" on the New York Stock Exchange.
Gross even said at an ETF conference that he expects TRXT will become the largest bond ETF in the world. So it's kind of questionable that this the extent of the statement issued by Pimco regarding the Total Return ETF: "The PIMCO Total Return Exchange-Traded Fund, which will trade under the ticker TRXT, is scheduled to list on March 1, 2012. Additional information about this fund will be available as the launch date approaches."
Sure, it's a good thing that retail investors will be able to get in on the Total Return Fund's action, but the debut of this ETF probably won't be the biggest thing in the ETF world this year, at least not in our opinion. Here are five reasons to not be too excited about the Pimco Total Return ETF.
Losing Assets The Total Return Fund has been hemorrhaging assets, so why make a big deal about its ETF equivalent? In November 2011, investors withdrew $500 million from the Total Return Fund, raising the outflow over the past 12 months to $10.3 billion, Morningstar said in December. However, other bond funds attracted $10.2 billion in assets in November. Yes, the Total Return Fund has a whopping, $241 billion in AUM, but the outflows have been steady in recent months.
Not The Biggest Maybe the Professor is being a tad skeptical, but he's not betting on TRXT being the largest ETF in any segment, bond or otherwise. Of the 20-largest U.S.-listed ETFs by assets, six are bond funds. Working from the bottom of that group to the top, this is what TRXT is going to have to contend with in terms of garnering assets.
iShares iBoxx $ High Yield Corporate Bond ETF (NYSE: HYG): $10.6 billion. iShares Barclays 1-3 Year Treasury Bond ETF (NYSE: SHY): $11 billion. iShares Barclays Aggregate Bond ETF (NYSE: AGG): $14.1 billion. Vanguard Total Bond Market ETF (NYSE: BND): $14.6 billion. iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSE: LQD): $16.9 billion. iShares Barclays TIPS Bond ETF (NSYE: TIP): $21.2 billion.
And if TRXT wants to become the largest ETF in the world, that would require usurping the SPDR S&P 500 (NYSE: SPY), which has almost $95.4 billion in AUM.
Expense Ratio TRXT will have an expense ratio of 0.55%. That's five times higher than BND's. That's more than triple LQD's and more than double AGG's. For 0.55%, investors can get involved with spicier international fare such as the WisdomTree Asia Local Debt ETF (NYSE: ALD) and the WisdomTree Emerging Markets Local Debt ETF (NYSE: ELD).
Actively Managed TRXT will be an actively managed ETF, a concept that, broadly speaking, hasn't really caught on with ETF investors. At the end of 2011, there was over $1 trillion in AUM at U.S. ETFs and ETNs, but just $5 billion of that could be found at actively managed funds.
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