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Is PIMCO Total Return ETF the Crossing of a Rubicon?

A new product brings up old questions.


PIMCO filed a preliminary prospectus last week that was received like chum in the exchange-traded fund waters--the PIMCO Total Return ETF.

Champions of the ETF view PIMCO's Total Return entree as a watershed moment. It's one thing to have a big lineup of index funds and a handful of mostly unremarkable actively managed portfolios available as ETFs. It's another altogether when one of the most successful, highest-profile active managers in the asset-management business plans to run an ETF with the same strategy used in his flagship fund. (Despite its name, the ETF will not be a Vanguard-style share-class offshoot of  PIMCO Total Return (PTTDX), and its portfolio may at times look different, as well.) The fact is that while passive ETFs have been legitimized and broadly accepted by investors and asset managers alike (notably Vanguard and BlackRock), active ETFs have existed on the periphery, without any clear indication that they were truly viable for the most sought-after active managers. For some, that recognition has been a kind of Holy Grail.

Boosterism aside, the strongest argument for lauding this development is that it could act to disrupt some obstacles that otherwise separate small investors from institutional-quality managers. Although PIMCO's institutional shares are relatively inexpensive, for example, they are difficult to access, unless you have millions of dollars to invest, you're investing through a financial intermediary who charges you directly, or you invest via a large retirement plan. Meanwhile, the firm's retail share classes (A, B, C, and D shares, in particular) are all designed for distribution to investors through intermediaries such as brokers and fund supermarket platforms. And though PIMCO is actually cutting the costs on some retail share classes on May 1, they will still include layers of fees to pay for account administration and to compensate those intermediary players.

Eric Jacobson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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