Pimco Total Return ETF Seen Losing Market Lead: Chart of the Day

Pimco Total Return’s exchange-traded fund may soon struggle to exceed the performance of its mutual-fund counterpart, according to Claude Erb, a former fund manager at Trust Co. of the West.

As the CHART OF THE DAY illustrates, the ETF has produced higher returns since its shares debuted in March 2012. The gap with the mutual fund’s institutional class of stock three days ago was 6.6 percentage points, the widest ever.

The actively managed ETF has been able to focus on the “best ideas” in Pacific Investment Management Co.’s flagship bond fund because of its size, Erb wrote in a report that had a similar chart. The exchange-traded version had $3.4 billion in assets two days ago, and the mutual fund held $228.9 billion.

Payoffs from this strategy “may fall rapidly” as assets climb, according to the Los Angeles-area investor, if monthly performance comparisons for the Pimco Total Return shares are any guide.

“The best time to exploit ‘best ideas’ is when an ETF launches,” the report said. “BOND’s value-added opportunity seems to have played out,” he added, referring to the fund by its ticker symbol.

Erb is a recipient of the CFA Institute’s Graham and Dodd Award, given for excellence in research and financial writing. His study was published June 8 and is available on the Social Science Research Network, an online repository. Pimco Total Return’s institutional class is offered through a retirement plan of Bloomberg LP, the parent company of Bloomberg News.

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