As bond yields rise, investors are finally seeing some losses in
their fixed income holdings. This is probably quite the shock to
most investors as it signals the end of the nearly 30 year bull
market in fixed income.
Thanks to this, many are exiting fixed income securities entirely
and are putting their capital to work in stocks or even commodities
instead. This is leading to huge outflows for many of the top bond
products out there, including arguably the most famous, the
PIMCO Total Return Fund (
The enormous bond fund, which has over a quarter trillion in assets
under management, has been losing assets for four straight months
now, with the outflows picking up as of late.
Outflows are moving out at a rate of at least $7.5
for each of the past three months, putting the total YTD outflows
at $23.2 billion for the benchmark product (see
all the Total Bond Market ETFs
Trend Across the Board?
Clearly, investors are pulling out of the product to a decent
degree, and this is followed up by bond outflows in a number of
other key mutual funds and popular ETFs lately. However, it is
worth noting that for the ETF form of the PIMCO Total Return
product, outflows really haven't been that bad this summer.
PIMCO Total Return ETF (
has actually seen outflows of just $73 million in the past month,
and roughly a quarter billion since the quarter began. Furthermore,
the ETF has actually added about half a billion in assets so far in
2013, going against the trend both in the broad space and in terms
of its counterpart mutual fund product as well (read
Forget BOND, Focus on These Junk Bond ETFs
Granted, BOND has just a fraction of the assets that PTTRX has-just
over $4 billion-but it still suggests that there is a bit of a
divergence developing between the two key products lately. This is
surprising since BOND has a higher expense ratio than PTTRX, though
the performances of the two could be a clue for why the ETF hasn't
been abandoned yet.
In terms of YTD performance, BOND has clearly outperformed its
mutual fund counterpart (by roughly 100 basis points), though both
are posting a loss in year-to-date time frames. And in shorter time
frames, this trend continues as both in the trailing three and one
month periods BOND has beaten out PTTRX.
If that wasn't enough, BOND is still holding its ground when
compared to other popular bond ETFs in terms of trailing one year
performances. If investors compare BOND to
, two of the most popular total bond market ETFs out there, the
PIMCO product is a clear winner.
The ETF has lost just half a percent in the trailing one year time
frame, compared to 3% losses for both AGG and BND in the same
period. While BOND has certainly faced more turbulence lately, it
is still maintaining a degree of outperformance, though it looks to
be more volatile in the months ahead (also read
3 ETFs for Rising Interest Rates
Given this performance though, it is easy to see why investors
haven't abandoned BOND the same way that they have PTTRX lately.
The product has held up remarkably well, and it is still
outperforming a number of other bond products too.
While this might seem strange since BOND is supposed to implement
the same strategies and techniques as its mutual fund counterpart,
it is important to remember that due to some regulatory issues, it
can't use derivatives as PTTRX does.
So it is possible that some of the swaps and other derivative
instruments that have been utilized in PTTRX have actually dragged
down the return as of late, and could be at least part of the
reason for the relative underperformance (see
3 Important Questions to Ask About Your ETF
Lastly, just because investors have started to give up on the
mutual fund version of the total return strategy, it doesn't mean
that the ETF has been experiencing the same issues. The ETF has
actually been holding up quite well, so don't write off this
version of the total return fund just yet.
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ISHARS-BR AG BD (AGG): ETF Research Reports
VANGD-TOT BOND (BND): ETF Research Reports
PIMCO-TOT RETRN (BOND): ETF Research Reports
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