Has Exodus From PIMCO's ‘BOND’ Begun?

September 29, 2014

With Bill Gross out at PIMCO, some assets may follow him.

A huge spike in trading volume Friday on the PIMCO Total Return ETF (BOND | B) suggests assets may be flowing out of the fund that, until Thursday, Sept. 25, was managed by Bill Gross, PIMCO’s legendary co-founder who resigned suddenly just before the firm was set to sack him.

Trading volume in BOND spiked to more than 5 million shares on Friday—more than 13 times the ETF’s average 30-day trading volume, according to data compiled by ETF.com. While volume data are ambiguous as to whether they reflect inflows or outflows, it seems a reliable guess that Friday’s volume spike means that some investors in BOND are cashing out and taking their assets elsewhere.

Indeed, the Wall Street Journal reported today that PIMCO had already lost $10 billion in assets, and Deutsche Bank is on the record forecasting that the Newport Beach, Calif.-based firm that Gross started 25 years ago could lose as much as $200 billion by the time the Gross-departure-related asset-bleed stops.

“I assume we’re going to see significant redemptions,” Dave Nadig, chief investment officer of ETF.com, said, underscoring how star quality is at the center of the success that active management in general has in attracting investor attention and assets.

BOND is the ETF version of the PIMCO Total Return Fund (PTTRX), a $221 billion portfolio that remains the single biggest actively managed bond mutual fund in the world.

Both PTTRX and BOND were managed by Gross.

Top 10 Volume Surprises, Funds >$50 mm AUM

Ticker Fund Average Volume
(30 Day)
1-Day Volume % of Average
BOND PIMCO Total Return 370,156 5,042,378 1,362.23%
ILB PIMCO Global Advantage Inflation-Linked Bond Strategy 6,678 70,391 1,054.11%
TZV iShares Target Date 2040 4,161 30,845 741.37%
ADRE BLDRS Emerging Markets 50 ADR 27,285 192,394 705.14%
ISTB iShares Core Short-Term USD Bond 17,373 119,705 689.03%
TLH iShares 10-20 Year Treasury Bond 25,930 163,770 631.59%
MLPA Global X MLP 61,776 381,705 617.88%
FAD First Trust Multi Cap Growth AlphaDEX 11,398 61,437 539.02%
SCHZ Schwab U.S. Aggregate Bond 143,396 767,223 535.04%
IDX Market Vectors Indonesia 103,528 550,287 531.54%

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Volume Vs. Flows

To be clear, volume spikes frequently precede actual inflows or outflows by at least a day, as a given ETF trade takes time to settle and be recorded as either a purchase or sale. That said, the daily portfolio disclosure requirements that regulators mandate for ETFs mean that investors will know in short order and without a shade of doubt what investors in BOND are doing in the wake of Gross’ sudden departure.

BOND, the second-biggest actively managed ETF by assets, ended Friday’s session with more than $3.5 billion in assets. It had outflows of $10 million. Again, trading-volume data precede actual inflows or outflows by anywhere from one day to six days as a given trade moves from execution to settlement.

BOND rode Gross’ fame after its launch on March 1, 2012 to become the second-splashiest launch in the two-decade history of the ETF industry. The fund gathered its first $1 billion in assets in three months—second only to the SPDR Gold Shares (GLD | A-100), which gathered its first $1 billion in just three days after its launch in November 2004.

A Star Is Gone

BOND was, for a time between late 2012 and mid-2013, the biggest active ETF in the world. It was viewed as a “Best Ideas” fund where Gross could move into pockets of the fixed-income market that were too small for the huge mutual fund version of the Total Return ETF. For the record, the biggest active exchange-traded fund is now the PIMCO Enhanced Short Maturity Strategy Fund (MINT | B), a money-market-fund proxy with $3.7 billion in assets.

BOND started to hit head winds in May 2013 after the Federal Reserve first signaled it planned to begin to end its quantitative-easing program. In fact, many broad market fixed-income funds were on the defensive as investors fretted about how the prospect of higher interest rates would affect bond prices.

BOND’s allure was further compromised after Gross’ heir apparent at PIMCO, Mohammed El-Erian, quit suddenly early this year amid widespread reports that he had had a messy falling out with Gross.

The challenges continued after El-Erian’s departure, and a number of media organizations reported on Friday that Gross’s behavior had become increasingly erratic over the past few months.

PIMCO, faced with a number of either-Gross-goes-or-I-go ultimatums from senior executives, had decided to fire Gross on Saturday, Sept. 27, the reports said.

But in a pre-emptive move, Gross resigned suddenly and joined Janus Capital Group. Gross will run a new and small unconstrained bond fund, but will remain in Newport Beach and won’t relocate to Denver, where Janus is based.

 

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