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TheStreet Open House

Bill Gross' New ETF Will Be Tough to Mimic

BOSTON ( TheStreet) -- Followers of bond-fund maven Bill Gross of Pimco will be able to get a gander at his trading strategy once the firm launches its first exchange traded fund later this year. But that doesn't mean investors can replicate Gross' big wins on their own.

That's because of a regulatory wrinkle that will preclude the do-it-yourselfer from matching his moves trade for trade, at least for now.

Pimco fund manager bill Gross to tip his hand at new ETF

Gross has built a reputation as a brilliant manager of the world's largest mutual fund, the $253 billion Pimco Total Return Fund (PTTAX), which has a five-year average annual return of 8.5%, more than twice that of the S&P 500 Index.

An ETF, which trades throughout the day like a stock, discloses its portfolio holdings on a more regular basis than a mutual fund to provide greater transparency, per Securities and Exchange Commission regulations. And that got some investors excited that they'll be able to match Gross' moves without buying the ETF.

But his Pimco Total Return mutual fund uses derivatives to massage returns, something the new ETF won't be able to do, which means the best a camp follower will be able to do is take cues from the direction of his trades, which can be market moving given the size of the assets he and his management team oversees.

The SEC is reviewing the use of derivatives, such as futures, options and swaps agreements so investors will be fully aware of the degree of risk involved in such practices. It may decide derivatives are too risky for investors in the rapidly moving funds, but it hasn't given a deadline on when it will decide.

And therein lies the rub for those seeking to match Gross' strategy by reviewing his portfolio moves at the ETF.

"It would not have an identical strategy," given the absence of derivatives, said Todd Rosenbluth, a mutual fund industry analyst for Standard & Poor's.

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