The reigning king in the segment of actively managed midterm total return bond strategies has long been the PIMCO Total Return Active ETF (BOND | C). That may be about to change, and any day now.
The four-year-old BOND once boasted Bill Gross’ expertise at the helm and went on to become the second-most-successful ETF launch ever—behind only the SPDR Gold Trust (GLD | A-100)—gathering its first $1 billion in assets in only three months after it launched in 2012.
But BOND’s uncontested top spot in terms of assets under management is now being challenged by the 16-month-old SPDR DoubleLine Total Return Tactical ETF (TOTL | C)—a fund that marked Jeffrey Gundlach’s and his firm DoubleLine’s entry into the ETF market.
Nipping At BOND’s Heels
TOTL hit its first $1 billion in about five months, and has quickly been gathering assets, sitting now some $25 million away from matching BOND’s $2.58 billion in total assets. Day after day, that spread has been narrowing—the wind is certainly behind TOTL’s back.
Perhaps what’s most interesting about the rising success of TOTL and the declining popularity of BOND is just how important investor perception is when it comes to active managers.
Some in the industry say that one of PIMCO’s biggest head winds these days is just that: investor perception.
The headline-making departures of Mohamed El-Erian and, later, of Bill Gross in the past few years marked by first a break between the two managers, and later between Gross and PIMCO as a firm, has done little to foster investor confidence in PIMCO as a company.
Big Gap In New Inflows
Today BOND is managed by a very competent team comprising Scott Mather, Mark Kiesel and Mihir Worah—well-known and respected investment managers in the bond space, no doubt. But there’s no question that a large part of BOND’s resonance with investors in its early days was Gross’ star power. As Morningstar put it in its fund report for BOND, “it will still take some time to see how these three, all strongly opinionated and talented investors, coalesce as a team.”
Perhaps BOND’s biggest asset-gathering challenge is keeping investors put, and attracting new ones during this transition process. Gross left PIMCO late in 2014 to join Janus Capital. (PIMCO did not respond to request for comment.)
In the past 12 months, BOND has seen modest net inflows of $107 million, according to FactSet data, while its main competitor, TOTL, has gathered $1.71 billion in the same period, or more than 10 times as much.
“The world of active fixed-income investing has seen significant turnover in terms of individual portfolio managers as well as leadership firms,” said Ron Redell, executive vice president at DoubleLine. “The senior portfolio managers at DoubleLine have worked together on average for nearly two decades. That long-tenured cohesion has been a source of stability.”
According to Redell, TOTL’s success also stems from DoubleLine’s strategic partnership with State Street Global Advisors, the third-largest ETF issuer in the country today, “whom we consider the best-in-class in ETF product creation and distribution.”
But there’s also the issue of performance.
Year-to-date, TOTL has delivered about 70 basis points more than BOND, as the chart below shows. The gains have come as investors poured more than $664 million in fresh net assets into TOTL, and yanked about $90 million from BOND:
Chart courtesy of StockCharts.com