Gross vows to diversify: Pimco to launch 19 active ETFs

Jan 27, 2014 @ 4:22 pm

Pacific Investment Management Co., the world's biggest bond manager, plans to start 19 actively managed exchange-traded funds as co-founder Bill Gross further diversifies the firm following chief executive Mohamed El-Erian's resignation last week.

Pimco will more than triple its active-ETF lineup by offering variations of mutual funds such as Pimco Income, Pimco Unconstrained Bond, Pimco Municipal Bond and several StocksPlus and IndexPlus products, according to regulatory filings with the Securities and Exchange Commission on Jan. 24. The StocksPlus funds attempt to beat the equity market with bonds and derivatives. IndexPlus funds use an untraditional benchmark that isn't dominated by market capitalization.

Mr. Gross, who will continue as chief investment officer after sharing those duties with Mr. El-Erian, said in an interview last week that the firm intends to emphasize the performance of the StocksPlus funds, which he has led since their launchin the 1980s. He said Pimco will continue to try to be a “global investment authority” and show the depth of its investment talent by appointing deputy CIOs for different asset classes.

“We believe actively managed ETFs provide another way for investors to access Pimco's global strategies across fixed income, equities and commodities, all backed by the firm's time- tested investment process,” the firm said in an e-mailed statement on Monday.

The $29.9 billion Pimco Income Fund, run by one of the first two new deputy CIOs, Dan Ivascyn, averaged returns of 15% in the five years through Jan. 24, ahead of 99% of rivals, according to data compiled by Bloomberg. The $26.8 billion Pimco Unconstrained Bond Fund, which is being overseen by Mr. Gross as former manager Chris Dialynas prepares for a sabbatical, returned an annualized 4.7% in the same period, behind 82% of peers, according to data compiled by Bloomberg.

FOREIGN BOND

Pimco will also start active ETFs that are similar to its $6 billion Pimco Foreign Bond Fund (U.S. Dollar Hedged), $6.5 billion Pimco CommoditiesPlus Strategy Fund. Another ETF will be a version of the $1.2 billion StocksPlus Absolute Return Fund, run by Mr. Gross, which returned an annualized 26% over the past five years, ahead of 96% of similar funds, according to data compiled by Bloomberg.

Mr. Gross's $237 billion Pimco Total Return had record net withdrawals of $41 billion last year, according to Morningstar Inc. estimates, as investors fled traditional bond funds because of rising interest rates. Pimco as a whole had $30.4 billion in net redemptions during 2013, compared with net deposits of $62.7 billion in 2012, the biggest drop in organic growth among the 10 largest U.S. mutual-fund groups, the research firm said.

In 2012 Mr. Gross,created an active ETF variation of Total Return. The $3.5 billion ETF had net withdrawals of $197 million last year, according to Morningstar estimates.

The firm, which oversaw $1.92 trillion in assets as of Dec. 31, has nine active ETFs in its product line, according to its website.

Under Mr. El-Erian, who made a name for himself investing in emerging-market debt early in his Pimco career, the bond firm more than tripled its assets under management as investors flocked to fixed income after the 2008 financial crisis. Money in non-traditional funds rose to 66% of Pimco's assets from 56% when Mr. El-Erian became CEO, according to an internal memo to employees last week obtained by Bloomberg News.

Unlike traditional passive ETFs that track an index, active ETFs blend the trading flexibility and accessibility of ETFs with managers' investment-picking abilities.

(Bloomberg News)

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