Ari Weinberg is the WSJ Editor for Financial Tools; His perspective can also be seen on occasion at the Journal’s MarketBeat.


PIMCO made a big splash in the small world of actively-managed exchange-traded funds by filing for an ETF version of its Total Return Fund.

As many have accurately noted, PIMCO’s filing makes a statement to the traditional mutual fund world that Bill Gross, who has $236 billion at his command, isn’t afraid to disclose the daily positions and valuations for thousands of assets.

Gross doesn’t need to fear front runners in his market. He is the market. (ht @retheauditors)

While the PIMCO Total Return ETF will not be a share class of the larger fund – due to Vanguard’s patent on the hub-spoke share class structure – the fund will no doubt see a huge influx of cash to feed Gross’s Total Return replication.

This is where you need to follow the money.

First, it’s important to understand the business of regulated asset managers and mutual funds. Whether you like it or not, all asset managers are asset gatherers. They have to be to stay afloat and get to scale.

Hedge funds, or unregulated asset managers, have created a model in which they are paid partly for the assets they manage but mostly for the returns they generate above a benchmark.

Most regulated funds do not operate this way. The portfolio managers and the asset management companies divide the rents generated by the expense ratio. They make more money by generating returns which attract more assets. (Sure, they reduce the expense ratio as the fund gets bigger, but they’ll gladly take a smaller percentage of a bigger pie. The numbers still work out fine. Just ask Bill Gross.)

But Gross didn’t become a billionaire by simply running his actively managed mutual fund. He followed the money.


Continues at MarketBeat.

Category: ETFs, Investing, Think Tank

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

5 Responses to “The Other Side of Active ETFs: Follow the Money”

  1. machinehead says:

    ‘PIMCO Total Return ETF will not be a share class of the larger fund – due to Vanguard’s patent on the hub-spoke share class structure.’

    I thought you were jokin’ me with this sentence. But the WSJ article really does say that Vanguard patented this structure.

    Can you imagine an airline patenting a hub-and-spoke route structure? Or a manufacturer patenting a hub-and-spoke distribution channel?

    If there was ever an argument for intellectual property reform, Vanguard’s frivolous, totally-obvious patent is Exhibit A.

  2. Joe Retail says:

    The original designer of the wheel has some serious litigation to get underway.

  3. Doubtful says:

    So when will we see an ETF from FusionIQ?

  4. louiswi says:

    Barry, you’re going to have to help out on this one.

    I don’t know if 236 billion is a lot of money or not. You imply that Bill gross is the market which would imply that 236 billion is in fact a lot of dough. With that in mind, how does society benefit to have that much power in the hands of one person. Is this a Too Big To Fail deal again? To be blunt; is this another load of crap coming down the highway again?

  5. “So when will we see an ETF from FusionIQ?”


    yon Market belloweth, anew..

    (read: x2)