NEW YORK (TheStreet) -- When "bond king" Bill Gross abruptly left Pimco last month, many fixed income investors -- usually a risk averse and restrained lot -- bolted in all directions. Billions of dollars poured out of the actively managed funds Gross created, much of it going into exchange-traded funds (ETFs).
That touched off a debate: Does passive ETF investing in bonds work as well as it does in stocks?
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For an individual investor, knowing the answer to this question is critical. Fees charged for active fund management can eat away at your returns, especially if you’re investing long-term for retirement. If bond ETFs can outperform actively managed bond funds, there’s no sense in paying fees for active management.
So what do the numbers tell us? For starters, Pimco’s $200 billion-plus Total Return Fund, the largest bond fund in the world and the one Gross used to run, charges fees and has lagged its own Barclay’s benchmark so far this year. Even for the “bond king,” consistent outperformance is really tough.
Seizing on Pimco’s moment of weakness, Vanguard founder and passive investing patron saint Jack Bogle said in interviews that investing in bond ETFs is a more profitable path for individual investors than chasing actively managed bond funds.
But is that the case? Looking at the data, the answer is not so clear. The reason: There are many different types of bonds.