January 12, 2012
Turning TRXT: The End of the Beginning? The Beginning of the End?

The March 1 listing of the PIMCO Total Return Exchange Traded Fund will be a pivotal event for the mutual fund industry.

As the exchange-traded version of the $244 billion Total Return Fund starts trading, the industry will get see one of its flagship actively-managed funds price throughout the day. Yet the new ETF’s ability to build assets over time will be the true test of the structure and the future of active funds.

As I noted on The Wall Street Journal’s MarketBeat last year, the acceptance of the exchange-traded model by the largest mutual fund is a signal that the regulated asset management business has fundamentally changed. 

At its core, an exchange-traded product should remove any trading and accounting externalities and isolate manager cost and margin. TRXT, the ticker for Total Return Exchange-Traded, comes out at 0.55 basis points, higher than the 0.46 basis point fee charged by the institutional class, but well lower than many of the other share classes of Total Return, including load and annuity classes. 

While TRXT will be similar to the core fund, it won’t feature derivatives nor can it be nearly as diversified.

Still, the rest of the actively-managed fund world will be watching to see how fast TRXT gains traction. PIMCO’s Enhanced Short Maturity Strategy Fund (MINT) at $1.8 billion AUM is the category leader in active ETFs (as well as longer-duration money fund alternatives.) Actively-managed equity ETFs haven’t had nearly the success, despite the best efforts of AdvisorShares to advance the model. 

But the move by PIMCO to open up the Total Return strategy to ETF investors could mark both the end of the beginning for ETFs and the beginning of the end for traditional funds.  

1:47am  |   URL: http://tmblr.co/ZaxaYyEefJwR
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