Orange County Business Journal

Pimco's Gross to Manage First ETF

Chris Casacchia Thursday, April 21, 2011

Bill Gross, co-founder and co-chief investment officer of Newport Beach’s Pacific Investment Management Co., will actively manage his first exchange-traded fund in a move that could reshape the booming investment strategy.

Pimco plans to launch the Pimco Total Return ETF, which will hold at least 65% of its assets in investment-grade corporate debt, according to a filing with the Securities and Exchange Commission.

The ETF, a version of the Pimco Total Return Fund− the world’s largest mutual fund−may invest up to 10% in high-yield "junk" bond securities while limiting its exposure to foreign currencies to 20% of its assets, the filing said.

ETFs trade on exchanges like stocks and investors can buy and sell shares throughout the day, unlike mutual funds that are prices at the end of the trading day.

ETFs also carry some tax benefits and typically have lower fees than traditional mutual funds.

An active ETF is run by managers who pick individual securities and don’t follow a particular index. They debuted in 2008 and have garnered much hype in investment circles since ETFs surpassed the trillion dollar mark last year.

Gross, known in the industry as the “bond king,” made a splash with the recent filing that some experts view as a turning point for the relatively new asset class.

Pimco manages four active ETFS and nine that follow indexes, according to its website.

Gross recently sold all U.S. bonds from his $236.9 billion Pimco Total Return fund in a move that strongly signaled Pimco’s belief the bond rally of the past 30 years has run its course.

Pimco is in the midst of a long running diversification plan away from bonds.

The company is in the process of taking over the selling of its mutual funds from its German parent Allianz SE. Pimco is opening a brokerage for its mutual funds in New York.

Earlier this month Pimco filed documents with the Securities and Exchange Commission to raise $600 million in an initial public offering to launch a new real estate holding company.

Pimco, which manages $1.2 trillion in investments for pension funds, insurers, corporations and others, started its first stock fund, the Pathfinder, a year ago.

The fund now has $1.8 billion in investments.

The company plans to debut its second stock fund, with a focus on emerging markets, this year with more expected in coming years.