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Thursday, July 19th, 2012
total return

Felix Salmon wrote a posting about the Bloomberg story regarding the difference in performance between the PIMCO Total Return Fund (PTTAX) and the PIMCO Total Return ETF (BOND), since the inception of the latter on March 1.

To the discussion, I would add a couple of things.  The degree of complexity of a large bond fund is such that trying to have a new fund mimic an existing fund is no easy task.  PIMCO has put itself in an unnecessary position by naming the ETF in a similar manner as the fund and giving the impression that they’re delivering the same thing in a different structure.  But, it’s unrealistic to assume that they’re going to have the same instruments in each and while you might fine tune the portfolio attributes, you’re not going to get identical performance.  That said, the gap between the fund and the ETF is larger than you would expect under the circumstances.

Something else to keep in mind is that the ETF portfolio will be disclosed on a daily basis, which doesn’t happen with the mutual fund.  For fun, you could save the ETF portfolios for each month end and compare them to the fund holdings you see on a delayed basis — if you can understand the amazing variety of instruments in the modern bond fund.  (Take the list to your investment advisor and see if he or she can explain them to you.)

The chart above also shows the DoubleLine Total Return Bond Fund (DLTNX), since if you don’t include Gundlach in a post that is sort of about Gross, people think you’re showing favorites.  In addition, the iShares Barclays Aggregate (AGG) is included to show how that benchmark-tracking ETF has done.

So, here’s a test:

One year from today, what will be the total assets in BOND (currently $2 billion) and in PTTAX ($263 billion for all classes)?

What will be the total returns for each of the four vehicles shown in the chart above during the next year?

Why?

Send me your answers and you may win a fabulous prize in the summer of 2013.  (Chart:  Bloomberg terminal.)