Gross Leaves Void At BOND ETF

September 26, 2014

His departure could result in investors looking elsewhere.

If actively managed exchange-traded funds have faced head winds against cheaper index ETFs before, the challenge just grew bigger with the departure of Bill Gross from PIMCO. Gross singlehandedly made the PIMCO Total Return ETF (BOND | B) the second-biggest active ETF in the world, and his departure takes from that fund the star power of its manager’s name.

The biggest active ETF is also from PIMCO, the PIMCO Enhanced Short Maturity Strategy (MINT | B), but Gross doesn’t directly manage it.

Who will replace Gross at the helm of BOND is still unclear. If you look at the prospectus for the fund, last updated when BOND was brought to market with fanfare in 2012, there’s an actual picture of Bill Gross under “portfolio manager” with no other names. He wasn’t exactly known as a man who often shared the limelight.

The Wall Street Journal reported that deputy chief investment officers Mark Kiesel, Mihir Worah and Scott Maher will now run BOND's mutual fund counterpart, the PIMCO Total Return Fund, but there was no mention of BOND. Calls and emails to PIMCO remain unanswered.

New Managers, New Risks

There’s no question that what made BOND the most successful active ETF launch ever was Gross’ name behind it.

His departure could suggest the fund’s prestige as the exchange-traded brainchild of one of the world’s best-performing fixed-income managers could be about to dissipate, according to fund industry sources. As the prestige goes, so could the assets.

“In our opinion, management changes add risk for investors as the investment process can and often will be altered to reflect the new manager’s preferences for assuming risk,” S&P Capital IQ’s director of ETF and mutual fund research Todd Rosenbluth said in a note today. “However, in this case, we think the departure of Gross will cause some investors to move money elsewhere.”

“Prior to today, the biggest news regarding PIMCO was tied to its flagship ETF,” he added. “While Gross was the named manager of BOND, an ongoing investigation at PIMCO regarding how it values the bonds it holds will cause more investors to question whether there are better places to invest [in] particularly a passive ETF from iShares, Vanguard or others.”

What ETFs could stand to benefit from a possible asset exodus from BOND?


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