By almost any standard, it was a tough year for Bill Gross and his Total Return Fund (PTTAX). The fund underperformed many of its peers and, for the first time since 1993, Pimco's giant bond fund saw total net redemptions. The lackluster results don't seem to be dampening Mr. Gross' expectations for the soon-to-be-launched ETF version of the fund, however.
The co-chief investment officer of Pacific Investment Management Co. LLC told attendees at a conference Tuesday that he expects the Total Return exchange-traded fund to follow in the mutual fund version's footsteps — and eventually become the largest ETF in the world. “We're working with large expectations here,” he said.
Apparently so. The $95 billion SPDR S&P 500 ETF is now the largest ETF in the world, less than half the size of the $244 billion Pimco Total Return Fund, the largest mutual fund in the world.
Launching an ETF version of the fund opens it up to a range of new investors, primarily ones living abroad. “Basically anyone that has access to the New York Stock Exchange will be able to invest in it,” said Scott Burns, director of ETF research at Morningstar Inc.
“We're very proud of the relationship we have with retail firms and our existing distribution channels," Mr. Gross said. "But here's a chance for small investors to get access to it."
The Pimco Total Return ETF will carry a lower expense ratio than the retail shares of the mutual fund. The fund will charge 0.55%, according to a prospectus filed with the Securities and Exchange Commission. The mutual fund currently charges 0.9%.
The fund will launch March 1, according to the Pimco.
Unlike mutual fund shares, ETFs trade intraday on an exchange. Thus, investors in the Pimco ETF will be able to buy on the margin, purchase put or call options and even short the shares, Mr. Burns said.
Shorting may be of particular interest to investors after the rough 2011 logged by the Pimco flagship fund. Investors pulled $5 billion out of the Total Return Fund, the first year of net redemptions since 1993, thanks to Mr. Gross' missing out on the Treasury rally. He issued a “mea culpa” to shareholders in October.
“Over a long period of time we've done well,” Mr. Gross said. “And we hope we can do as well with the ETF as we've done with the fund over the past 20 years.”