Bill Gross’s Total Return ETF Allowed to Trade Derivates

The U.S. Securities and Exchange Commission approved the use of derivatives in Pacific Investment Management Co.’s Total Return exchange-traded fund, allowing it to more closely track the world’s biggest bond mutual fund.

The regulatory body’s approval of the Nov. 6 request to amend the ETF’s description means it will be able to invest in options, futures or swap agreements, according to the July 24 filing.

The $3.5 billion ETF follows a similar strategy to the firm’s $223 billion Total Return mutual fund. Both are managed by Bill Gross, co-founder of Newport Beach, California-based Pimco, who uses a combination of options, futures and swaps, along with traditional bonds, for his mutual fund. The ETF returned 4.7 percent this year through yesterday, compared with a 3.8 percent return for the mutual fund.

The SEC froze approval for new ETFs that make significant use of derivatives in March 2010 after warning that some products could confuse individual investors. It lifted that ban two years later, provided the funds met requirements on managing risk and disclosure.

ETF Trends reported the change at Pimco’s fund earlier today.

(Corrects second paragraph in a story originally published Aug. 8 to show that the fund will be able to invest in options, futures or swaps and cannot immediately do so.)
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