ETF Focus: PIMCO Total Return

Apr.20.12 | About: PIMCO Total (BOND)

In March the launch of the exchange traded fund PIMCO Total Return ETF (NYSEARCA:BOND) was a big deal to investors everywhere. Some thought it would put the ETF industry on the map, others saw it as a chance for actively managed ETFs to get off the ground, but either way it is a success.

In a recent interview with The Wall Street Journal, manager Bill Gross said the ETF has "certainly exceeded our expectations."

After the ETF's first month on the market, there is about $340 million in assets under management, with about 200,000 shares traded daily. Furthermore, BOND returned 2.52% from its Feb. 29 launch through April 12, according to investment-research firm Morningstar.

BOND outperformed its benchmark, the Barclays Capital Aggregate Bond Index by 2.48 percentage points, as well as the mutual fund predecessor, the Pimco Total Return Fund. The ETF is modeled after the world's largest bond fund with $252 billion in assets and returning 0.74% over the same time period, reports Kirsten Grind for The Wall Street Journal.

Although the ETF version beat the mutual fund over the first month of trading, there are some differences between the products that should be noted. There is a rate sensitivity difference, as BOND has a slightly lower effective duration of 5.28 years compared to a 5.68 year reading for the mutual fund. Also, BOND has about 10% of assets invested in emerging market bonds, and PTTRX has around 2% allocated there.

Additionally, mortgage securities make up 72% of the ETF compared to 52% in the mutual fund while Treasury bonds account for 56% of BOND compared to about 40% for the mutual fund counterpart.

BOND has also paved the way for actively managed ETFs to gain back the spotlight. The only drawback to this type of fund is the possibility of front running, but a long term track record will prove if this is detrimental or not.

For now, BOND has lived up to the hype and has been able to do so without the use of derivatives. Investors that are interested in BOND also save a bit in the way of basis points. Whether or not the trend can continue is yet to be seen, but investors are watching.

Tisha Guerrero contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.