BOND’s Lost Assets Go To ETF Mainstays

In the fast-moving world of ETFs, Gross’ exit has hurt BOND, but helped its biggest competitors.

The PIMCO Total Return ETF (BOND | B), managed until recently by Bill Gross, has lost money on virtually every day since his Sept. 26 departure, totaling about $880 million, or about 25 percent of its assets. Worse yet, the ETF Gross ran has lost much of those assets to the very competing funds he belittled during the early glory days of BOND in 2012.

Investors yanked almost $220 million out of BOND in the past week ended Thursday, Oct. 9—which comes on top of $662 million in redemptions in the prior weekly period, according to data compiled by ETF.com Analytics. BOND now has $2.7 billion in assets—down from about $3.5 billion on the day Gross suddenly resigned from the Newport Beach, California-based company he founded 25 years ago.

On the flip side, the ETF market’s two biggest broad indexed bond funds, the $20 billion-plus iShares Core U.S. Aggregate Bond ETF (AGG | A-97) and the $24 billion Vanguard Total Bond Market ETF (BND | A-93), have been raking in assets over the same period. AGG added $426 million in the past week, while BND added $732 million. In the prior week, inflows into each of the ETFs totaled more than $1 billion.

To be sure, investor nervousness has contributed to the inflows, but on some days in the past two weeks, the flows out of BOND came suspiciously close to matching the combined inflows into Vanguard’s BND and iShares’ AGG.

Total ETF assets edged lower to $1.836 trillion in the past week, as the S&P 500 Index’s drop of nearly 1 percent offset net ETF inflows of almost $4.6 billion.

Interchangeable?

Moreover, notwithstanding the actively managed BOND’s capability to own non-U.S. bonds, the PIMCO ETF still plays a similar role that domestic core bond funds such as BND or AGG play in an investment portfolio.

Gross made that abundantly clear in September 2012, when he implored advisors to dump their positions in BND or AGG and invest in BOND, the new ETF version of the $220 billion PIMCO Total Return Fund (PTTRX) he also managed until the day he left PIMCO.

“If you have clients in BND or AGG, get them over [to BOND],” Gross told an audience of financial advisors at ETF.com’s Inside Fixed Income conference. “I don’t care about the fees. Just bring them over because you’ll be helping them out. I can’t guarantee it … but I think it’s a pretty good bet,” he said, dismissing the significance of BOND’s price tag, which is higher than either BND’s or AGG’s.

BOND has an annual expense ratio of 55 basis points, or $55 for each $10,000 invested, compared with the 8-basis-point expense ratios on both BND and AGG.

PIMCO Soap Opera

Gross resigned unexpectedly on Friday, Sept. 26, after months of rancor at PIMCO, the world’s largest bond fund manager. He was reportedly about to be fired, according to several media reports. His behavior had been erratic in recent months in the wake of the sudden departure early this year of his heir apparent Mohammed El-Erian, according to a number of published reports.

As noted, Gross was, until Thursday, Sept. 25, the manager of BOND as well as its mutual fund version, the PIMCO Total Return Fund (PTTRX). The mutual fund is the biggest fixed-income mutual fund in the world. BOND remains the second-biggest actively managed ETF after the nearly $3.9 billion PIMCO Enhanced Short Maturity Strategy Fund (MINT | B).

PIMCO, a firm with about $2 trillion in assets under management, has suffered total redemptions in the tens of billions since Gross left. The firm itself estimates outflows related to Gross’ departure could total $100 billion when all is said and done, and some on Wall Street estimate that figure could reach as high as $200 billion.

Gross immediately joined Janus Capital Group. He will run a new and small unconstrained bond fund. In a briefing yesterday, Gross spoke to analysts about the promise of unconstrained bond funds in the current environment.

Gross will remain in Newport Beach and won’t relocate to Denver, where Janus is based.

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Disclaimer: All data as of 6 a.m. Eastern time the date the article is published. Data is believed to be accurate; however, transient market data is often subject to subsequent revision and correction by the exchanges.