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BOND

BOND's Asset-Losing Streak Continues Apace

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The Pimco Total Return ETF (NYSEArca: BOND) has continued to see steady net asset outflows since the fund broke its impressive asset-gathering streak with its first monthly redemptions ever in May.

After closing the month of May with net outflows of some $31 million, BOND has gone on to shed another $543 million in June, and July has so far brought no relief: An additional $63 million has already been yanked out of the fund since July 1, according to data compiled by IndexUniverse.

In all, BOND since May 1 has now lost a net of $637.8 million, or roughly 13 percent of its assets.

BOND’s asset loss has been accompanied by a performance that reflects investors’ growing jitters surrounding the fixed-income space following the Federal Reserve’s suggestion that the end of the easy-money era may start to take shape as soon as this year.

BOND has now dropped 3.69 percent so far this year, and has slid nearly 5.75 percent since May 1. Shares of the fund, currently hovering near the $105 mark, are trading around lows not seen since May 2012.

While the Fed’s rhetoric has been shifting since it first began signaling an end to quantitative easing several weeks ago—this week a more cautious Fed now seems recommitted to staying focused on easy-money policies even if unemployment figures improve—the damage has been done. Bond investors have raced to trim exposure amid volatile price and yield movements in U.S. Treasurys.

BOND’s Belly Blow

This volatility has been particularly felt in the so-called belly of the yield curve (intermediate-term debt), some of the issues that comprise much of BOND’s portfolio. About 44 percent of the fund is allocated to three- to 10-year debt.

BOND, the ETF version of Pimco’s flagship $290 billion Total Return Fund (PTTRX), is designed to keep its duration within roughly two years of that of the broad Barclays U.S. Aggregate Bond Index.

The fund’s effective duration is currently reported at 5.27 years—and it was a focus on the intermediate portion of the U.S. yield curve that Pimco said contributed to BOND’s underperformance relative to the Barclays Index in May, according to a commentary posted on its website.

As investors continue to brace for rising interest rates ahead of the Fed’s possible “tapering” of its massive bond-buying program aimed at keeping rates low in the post 2008-credit-crisis period, there’s little doubt that the possibility of the decades-long bond rally heading into the history books and the great rotation into equities continuing to take shape is now on everyone’s mind.

Pimco’s Bill Gross, who runs both BOND and PTTRX, has suggested before that the bond rally was coming to a halt.

The actively managed ETF, comprising primarily investment-grade debt, now has $4.3 billion in assets gathered in 15 short months since inception.

 

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