MONEY


Despite bond legend Bill Gross’ success, you should beware of exchange-traded funds now being run by active managers. ::


GROSS


The New ETFs: Passive No More BY GREG BROWN A


s financial product launches go, it was a doozy. Bond guru Bill Gross, founder of PIMCO,


announced last spring that his fi rm would create an exchange-traded fund (ETF) version of PIMCO’s hugely successful Total Return Fund, the world’s largest mutual fund at $273 billion. The new ETF — under the ticker


symbol BOND — would use the same bond strategy as the popular mutual fund but work like an ETF. Oddly, the ETF’s expense ratio is slightly higher, but in theory the


72 NEWSMAX MAXLIFE | MARCH 2013


added value is that one could trade it more readily. Boy, did it deliver. At just six


months, BOND had outpaced the benchmark index of U.S. Treasurys, up 8.69 percent (net of fees) versus 2.97 percent for the index. It now manages $3.78 billion, a number almost certain to increase.


BILL GROSS’ NEW PARADIGM A stellar performance so far,


but one that raises an interesting question: When a passive strategy absolutely kills its benchmark, is it really just another form of active investing?


ETFs, after all, are supposed


to simply buy and sell the index, keeping costs down and surprises to a minimum. Over time, it has been shown that few managers consistently beat the market. Matching an index return while steadily compounding is the path toward reliable gains and wealth building — or so the conventional wisdom goes. Given this kind of splash, though,


should investors just buy BOND and call it a day? “It depends on if you believe in


the idea of active management. Most ETFs have been passive; they track an index. If you think someone like a


ILLUSTRATION/BULL’S EYE/IMAGEZOO/GETTY IMAGES / GROSS/BLOOMBERG/GETTY IMAGES


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