Today is the one-year anniversary of the launch of the PIMCO Total Return ETF (BOND).  Its March 1, 2012 launch was the most highly anticipated and hyped ETF introduction in years, some would say ever.  Today, BOND has $4.3 billion in assets, a one-year total return of 12.6%, and most analysts gushing over it every chance they get.  In short, the PIMCO Total Return ETF (BOND) has been a raging success in all areas except one – it failed its “Prime Directive” of being the ETF version of the PIMCO Total Return Bond Fund.

Actively managed ETFs have struggled to gain traction with investors.  To overcome this hurdle, investors were sold on the concept that BOND would be the ETF version of the PIMCO Total Return Bond Fund (PTTRX), a traditional actively managed mutual fund with an excellent long-term track-record and a star manager – Bill Gross.  PTTRX and its other share classes constitute the largest mutual fund in the world with more than $285 billion in assets, putting it nearly $100 billion ahead of the second largest fund.  Creating an ETF version would be a slam dunk.  To solidify the marketing concept, the new ETF was given the same name as the mutual fund.

Now that the ETF (BOND overview) has a year under its belt, let’s compare it to the mutual fund (PTTRX overview):


Fund Stat ETF Version Mutual Fund Version
Ticker Symbol BOND PTTRX
Assets (billions) $4.3 $285.6
Number of holdings 797 ~20,600
Expense Ratio 0.55% 0.46%
SEC 30-day Yield 2.43% 1.23%
Distribution Yield 1.66% 2.06%
1-Year Total Return 12.62% 7.61%
1-Year Price Return 9.59% 1.00%
Standard Deviation 2.72% 2.59%
Correlation (r) to PTTRX 0.697 1.00
r-squared 0.486 1.00


You can see the differences in every statistic.  However, the last one is the most telling.  BOND has an r-squared of only 0.486.  That’s a level that diversified holdings strive to achieve.  Cloning attempts should be 0.95 or better.

With a correlation this low, I wanted to see BOND’s correlation levels to other funds.  Using the tools and database from Investors FastTrack, I ran correlation studies of BOND against three different fund universes.

First, I compared it to 625 intermediate-term bond funds, which constitute its peers.  That showed BOND is more highly correlated to 125 other funds than to PTTRX.  Next, I compared it to all 2,181 bond funds in the database, and that showed 146 funds with higher correlation.

Lastly, I looked at all 11,288 constituents in the Investors FastTrack database.  I found 150 funds with higher correlation readings to BOND than PTTRX has.  In all three cases, the mutual fund with the highest correlation to BOND is the TCW Core Income Class N (TGFNX) at 0.849.

Someone is bound to say, “It doesn’t matter.  So what if the correlation is low?  Just look at the performance!”  Yes, most of the differences turned out to be positive differences in its first year.  However, with such a low correlation, it could have gone the other way.

To paraphrase Ray J. Johnson, “You can call it BOND, you can call it PIMCO Total Return ETF, or even call it a great bond ETF, but don’t call it the ETF version of the PIMCO Total Return Bond Fund.”

Disclosure covering writer, editor, and publisher:  Long PTTDX.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.