Market Overview

Beyond BOND: Other Bond ETFs Merit Consideration


There is no doubt that the PIMCO Total Return ETF (NYSE: BOND), also known as the Bill Gross ETF, has been the most successful new ETF to come to market in 2012. Following it's April debut, BOND, the ETF equivalent of the wildly popular PIMCO Total Return mutual fund, has risen more than four percent and has accumulated more than $1.72 billion in assets under management according to PIMCO data.

Barring a miracle, it is unlikely any other ETF that has debuted this year will come within spitting distance of BOND's AUM total.

Along the way, BOND has been on the receiving end of an almost alarming amount of praise. Some have deemed the ETF to be a "watershed moment" for actively managed funds. The term "game-changer" as it pertains to BOND has been beaten like a dead horse. (Put the phrase "BOND ETF game-changer" into Google for supporting evidence.)

It can be argued that the real news is not that BOND has been so successful. No other ETF has the benefit of being known as the Bill Gross ETF and few ETF sponsors have the marketing resources that PIMCO has.

It is only slight hyperbole to say those that have fallen in love with BOND are acting as if this ETF has solved the mystery of cold fusion, can change water into wine and commit other heroic acts that deem the fund worthy of an unending spate of effusive praise.

Arguably, BOND's success acts a distraction for investors. For example, it seems to be forgotten that the WisdomTree Emerging Markets Local Debt Fund (NYSE: ELD) is an actively managed ETF. ELD, which charges 0.55 percent per year just as BOND does, is no shrinking violet among actively managed ETFs with almost $1.2 billion in AUM.

ELD has a cousin, the WisdomTree Asia Local Debt Fund (NYSE: ALD). ALD, which debuted in March 2011, is also actively managed and charges the same fees as BOND and ELD. In terms of size, ALD is by no means small with $413 million in AUM, yet these successful products go almost unnoticed because praising BOND has become a full-time job for many.

There are even some bond funds that are outpacing BOND. As was noted earlier, since the PIMCO offering came to market in April, it has returned 4.1 percent. As of June 28, BOND had a 30-day SEC yield of 2.96 percent.

Those numbers pale in comparison to what the unheralded Market Vectors CEF Municipal Income ETF (NYSE: XMPT) has offered. Since BOND's debut, the Market Vectors CEF Municipal Income ETF has jumped five percent. As of June 29, XMPT had a 30-day SEC yield of 5.52 percent. To be fair, XMPT's expense ratio is 98 basis points higher than BOND's, but that is buffered by better performance and a higher yield.

Staying with the theme of municipal bonds, an asset class that investors have embraced in a big way this year, there are other funds that stack up favorably against BOND.

Consider the case of the Market Vectors High-Yield Municipal Index ETF (NYSE: HYD). To be fair, it should be noted that BOND has outpaced HYD by about 120 basis points since the former debuted. However, HYD is 20 basis points cheaper and its 30-day SEC yield is 210 basis points higher. Those are points in HYD's favor that cannot be glossed over just because Bill Gross has a new ETF on the market.

Then there is the case of the newly minted iShares Utilities Sector Bond Fund (NYSE: AMPS). AMPS debuted in February and has been outperformed by BOND since the latter came to market. The iShares offering tracks primarily investment-grade corporate bonds issued by utilities. AMPS' 30-day SEC yield is slightly higher than BOND's and the sector fund has an expense ratio of 0.3 percent, 25 basis points lower than BOND's.

In the essence of clarity, this piece should not be construed as negative or an affront to anyone in particular. BOND has been a success. That is good for PIMCO and good for the fund's shareholders. That said, investors should not let all hullabaloo surrounding BOND distract them for the myriad of other worthwhile bond funds on the market.

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