Gross’s ETF Reaches $2 Billion as Version Trumps Original

Bill Gross’s Total Return Exchange- Traded Fund has doubled its assets in less than two months, as performance trumped that of the world’s largest mutual fund, whose strategy it mimics.

The Pimco Total Return ETF, which started trading on the NYSE Arca exchange on March 1, had $2.01 billion in net assets as of the July 16 close, according to Pacific Investment Management Co.’s website. The fund had advanced 7.7 percent, compared with the 4.2 percent return for Gross’s $263 billion Total Return mutual fund, according to data compiled by Bloomberg.

The new vehicle, designed to blend the trading flexibility and accessibility of ETFs with Gross’s bond-picking ability, is a test case for investor interest in active ETFs. In April, Pimco began an actively managed ETF that invests in global inflation-linked government bonds denominated in local currencies, bringing the total number of actively managed ETFs at Pimco to six. Its Enhanced Short Maturity Strategy Fund has $1.73 billion in assets.

Pimco Total Return ETF (BOND) reached $1 billion in net assets on May 21. Because the ETF is still much smaller than the mutual fund version, it can snap up notes with the biggest potential returns.

The Pimco Total Return Fund, while trailing its ETF version, is outperforming 98 percent of similarly managed mutual funds this year and over five years.

Unlike the mutual fund, which uses a combination of options, futures and swap agreements, Gross’s ETF can’t invest in derivatives because the U.S. Securities and Exchange Commission has frozen approval of new ETFs that make significant use of the instruments. Should the SEC lift the temporary ban, the Total Return ETF would invest in derivatives, Pimco said in its filing last year.

To contact the reporter on this story: Alexis Leondis in New York at aleondis@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net

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Pacific Investment Management Co. Fund Manager Bill Gross

Tim Boyle/Bloomberg

Bill Gross, fund manager of Pacific Investment Management Co.

Bill Gross, fund manager of Pacific Investment Management Co. Photographer: Tim Boyle/Bloomberg