Drum roll, please.

The long-awaited launch of an exchange-traded fund by a certifiable investing rock star is nigh.

The Total Return Exchange-Traded Fund (ticker TRXT) is scheduled to list on March 1, according to Pacific Investment Management Co., best known as PIMCO. 

PIMCO, of course, is home to famed investor Bill Gross, who is the scion of the largest mutual fund in the world. This, of course, is … the Total Return Fund, with $241.5 billion in total assets.

“We’re looking forward to the development of an array of ETS, from the standpoint of PIMCO,’’ Gross said on the ETF Virtual Summit Tuesday (January 10). The cornerstone? The Total Return Exchange-Traded Fund, which “we hope will be the biggest as well.’’

The Total Return Fund, which invests in high-quality bonds, has been a darling for investors over the last quarter century.

If you had put $10,000 into the fund on its inception date, May 11, 1987, you would have seen its value grow to $69,735 just after Thanksgiving.

Since inception, the fund has grown in value 8.2 percent, every year. In the past three years? 9.6 percent, per annum. Mite a bit better than U.S. Treasury bonds, of any duration.

But, in 2011, only 1.8 percent. Investors ran to the doors, pulling out $5 billion, by Morningstar’s count.

Meanwhile, PIMCO found itself sitting on the best-performing ETF, in 2011.


This would be the 25-year zero coupon U.S. Treasury exchange-traded bond fund with symbol ZROZ. If you had bet on it one year ago, you would have gained 51.9 percent on the investment.

Of course, only $64.9 million is invested in ZROZ. By contrast, the $241.5 billion held in the Total Return Fund is equal to 22.7 percent of the $1,060.2 billion held in exchange-traded funds in toto at the end of 2011.

The Total Return Exchange-Traded Fund, of course, is expected to be an actively managed fund.

Until about five years ago, that would have flown in the face of what an exchange-traded fund was meant to be.

The salient difference between a mutual fund and an exchange-traded fund is that the latter, of course, could be traded on a stock exchange. At any time during a trading session. Mutual funds only figured out what they were worth, at the end of each day.

But the bread-and-butter characteristic of an exchange-traded fund was that it allowed investors to pick a given sector of the economy or a particular index of stock market performance and sit back and relax. The components of the fund would automatically and passively match the composition and performance of the index.

Not so, any longer. The next iteration of ETFs is to move into “active” management. Bring in rules or bring in the human intelligence to get alpha. To find stocks that outperform a given index and provide investors with above-average returns.

That is where Gross and the Total Return ETF come in. To applause, from other proponents of actively managed funds, traded on exchanges.

“With that eight-figure marketing budget they have, they’re going to educate like crazy on ETFs and particularly on actively managed ETFs,’’ ’ said Noah Hamman, chief executive officer of AdvisorShares, in Bethesda, Mass., which markets actively managed exchanged-traded funds that focus on international stocks with strong growth prospects. “So that’s going to be huge.”

Based on regulatory filings in 2011, PIMCO has indicated that the ETF version of Gross’ Total Return Fund will have an annual expense ratio of 0.55 percent of assets. That’s 40 basis points below that of the mutual fund version. 

The ETF will trade on NYSE Arca, the all-electronic exchange operated by the New York Stock Exchange, using the symbol TRXT.  

Tom Steinert-Threlkeld writes for Securities Technology Monitor.




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