Bill Gross PIMCO ETF Hits Lifetime High As Bond 'Great Rotation' Debunked

| About: PIMCO Total (BOND)

By John Spence & Tom Lydon

Call it the revenge of the bond fund managers. U.S. Treasuries were written off by many investors in the first quarter but now yields on the 10-year note have violently pulled back to the lowest levels of 2013.

The iShares Barclays 20+ Year Treasury Bond Fund (NYSEARCA:TLT) soared Friday after the dismal March jobs report to cap a nearly 5% rally for the week.

Also Friday, the PIMCO Total Return ETF (NYSEARCA:BOND) managed by Bill Gross rose to its highest level since launching in March 2012.

The PIMCO ETF now holds $4.6 billion after gathering more than $700 million of inflows last month.

The strong recent performance and lingering cash inflows to bond ETFs and funds show that talk of a "Great Rotation" from bonds to equities was premature. U.S. Treasuries have enjoyed a three-decade bull rally.

"Fears of a rush for the exits from the U.S. bond market have been greatly exaggerated," Reuters reported Friday. "Even as the fixed-income sector grapples with a rare negative start to the year, many of the biggest and widely followed bond firms are still attracting new cash to their flagship funds. And it is not expected to stop any time soon."

"I think the demand is there because many investors, especially mom-and-pop investors, still want income and, equally important, have been burned twice on equities," said Jeffery Elswick, director of fixed income at Frost Investment Advisors, in the article. "They lost so much money, like in the double-digits, during the tech bust (2000-2002) and credit crisis in 2008 - and don't want to go through that again."

Safe havens

Investors have heard calls for the death of bonds for years now but it hasn't happened. In fact, yields on the 10-year Treasury note fell back below 1.7% last week, and more weak economic data would only increase speculation the Federal Reserve will buy more bonds to keep rates low.

Fixed-income funds skippered by PIMCO's Gross and other noted bond managers have profited from the recent pullback in Treasury yields and higher bond prices.

For example, noted bond fund manager Jeffrey Gundlach made waves last month when he reversed his once-bearish stance on Treasury bonds. "I bought more long-term Treasuries in the last month than I've bought in four years," Gundlach said in a report from early March.

First-quarter flows in bond ETFs illustrate that investors aren't exactly running for the exits. Global fixed-income ETF inflows were $11.6 billion, marking the eighth consecutive quarter with inflows of at least $10 billion, according to BlackRock.

Within fixed-income ETFs, Zacks Investment Research notes that short-term bond funds have been very popular lately.

If short-term bond ETFs are being used as safe havens, "this space can witness even more asset accumulation going forward," according to Zacks. "This could be especially true if anxiety over lofty equity levels continues, or if a broader market pullback materializes, thereby increasing demand for these lower risk ETFs."

Vanguard Short-Term Bond (NYSEARCA:BSV) has gathered net inflows of nearly $2.2 billion year to date, placing it fifth on the sales list for all ETFs, according to IndexUniverse data.

PIMCO Total Return ETF

Full disclosure: Tom Lydon's clients own TLT.

Disclosure: I am long TLT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.