The nearly five-month-old Pimco Total Return ETF (NYSEArca: BOND) may be a bit riskier than the $260 billion mutual fund it is based on, but it has so far returned 80 percent more, making the smaller and nimbler ETF the clear winner so far, IndexUniverse President of ETF Analytics Matt Hougan told Dow Jones newswires this week.
"The way we think about it is as Bill Gross' best-ideas fund," Hougan told Dow Jones Newswires Correspondent Murray Coleman in a videotaped interview.
Hougan said BOND is small enough for a good investment idea to make a difference, while the mutual fund version, the Pimco Total Return Fund (PTTRX) is like an "aircraft carrier," meaning small investments won't make a huge difference on returns.
BOND, which has gathered $2.28 billion since its March 1 rollout, has returned 8.23 percent in that period, while PTTRX has returned 4.5 percent.
"For most average investors who don't have access to the institutional share class of the Total Return bond fund, the combination of cost advantage, liquidity advantage and performance does make it a clear winner," Hougan said about the Total Return ETF.
"Would you rather have Bill Gross managing $260 billion, and having him play a small role in that portfolio, or have him manage $2 billion? I imagine there is more risk with BOND, but with that risk has so far come significantly more return," Hougan said, noting that in a sharp market sell-off, the mutual fund's use of derivatives would likely limit some of its losses.
Active ETFs are currently prohibited by the Securities and Exchange Commission from using derivatives.
But that hasn't stopped BOND from becoming the biggest actively managed ETF by assets. It recently surpassed the $1.81 billion Pimco Enhanced Short Maturity Strategy Fund (NYSEArca: MINT), a money market proxy.
Coleman asked Hougan whether BOND's success at attracting assets was a window into the future of actively managed ETFs, which currently have garnered less than 1 percent of the $1.210 trillion now invested in U.S.-listed ETFs.
"I still think actively managed ETFs have a long way to go. There are not many assets outside of BOND and outside of maybe MINT in the actively managed space," Hougan said.
"The problem with actively managed funds is that they're mostly sold on commission and on track record, and a newly launched (active) ETF has neither, and I think it will be a number of years before we see a lot of successful actively managed equity ETFs," added Hougan.
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