Tags: Gross | ETF | Total Return | fund

Pimco’s Gross Warns of Lower Returns for Pimco Total Return ETF

By Michelle Smith   |   Friday, 15 Mar 2013 01:27 PM

Pimco Total Return Fund, the $285 billion bond fund managed by Pimco co-CIO Bill Gross, has been shown up by the Pimco Total Return exchange-traded fund (ETF). But according to Gross, it's time for the ETF investors to lower their expectations.

Gross has a reputation as a fixed-income superstar, which is reflected by the assets under management in the Total Return fund.

While 2012 was a year when there was a lot of risk aversion, investors placed confidence in Gross. Bloomberg reported that the fund attracted $2.5 billion just in November. That marked the 11th month of net gains for the fund.

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Gross did not disappoint. Total Return gained 10.4 percent in 2012, beating 95 percent of its peers, says Bloomberg.

But, those are not the only glowing results on Gross record. The Total Return ETF has also boosted Gross's clout. The ETF is a year old, having launched in March 2012, but it has returned 12.39 percent, according to CNNMoney, and the assets held have grown 40-fold.

“We're glad to have BOND around because it proves that derivatives aren't the secret to Pimco's secret sauce,” Gross told Kiplinger.

He also told CNN Money that even he was surprised by the ETF's rapid success.

Strong returns tend to attract attention on their own. Couple that with star power and you get an even higher level of attraction. But those now eyeing [the ETF] may want to first consider a warning from Gross.

“Investors should know the past few months probably won't be replicated,” he told CNNMoney.

Kiplinger says the performance gap between the Total Return Fund and the Total Return ETF can largely be attributed to the fact that the ETF's portfolio is being built from ground up. It does not have the large legacy positions that the fund has.

When the ETF was smaller it was easier to manage. In February, Kiplinger reported the ETF had raked in $4.1 billion in assets. Growth, while positive in most regards, makes the task of management more challenging.

Also, the investors should not let the latest results obscure the reality of Gross' investment style. He also has a reputation for straying from the pack. For example, CNNMoney noted, the mutual fund's exposure to riskier nations such as Italy and Brazil is considered above average.

Gross' record is not flawless, CNNMoney warned, as he has underperformed his peers in two of the previous four years.

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