Today’s bond markets are dramatically different than bond markets just ten years ago. Even though companies are still issuing bonds at a relatively rapid pace, bond market trading volume has dropped precipitously over the last few years.

Bill Gross PIMCO Bond Funds

In this context, why don’t you ask Bond King Bill Gross what he thinks about small vs large bond funds performance? The answer might surprise you.

Bond funds: Pacific Investment Management experience

Bill Gross’ Pacific Investment Management Co.’s Total Return exchange-traded fund is a case in point. The ETF fund supposedly follows the same strategy as the firm’s $229 billion flagship Total Return mutual fund, yet the $3.4 billion ETF’s total returns are more than 6% higher over the last two years (14.7% vs 8.7%). Furthermore, both bond funds are managed by legendary Bond King Bill Gross.

The major difference in performance in the two bond funds that “share the same strategy” highlights how fund sizes and strategies can result in a huge variation in returns. This situation continues to get worse as the volume in the corporate bond market dries up.

Pimco spokesman Mark Porterfield addressed the large difference in recent returns between the two bond funds in an email statement: “Returns may differ, especially over shorter time periods, primarily driven by differences in flows and guidelines. Over longer periods, we expect outcomes to be well in line with each other.”

New Gundlach ETF fund

Jeffrey Gundlach has also decided to throw his hat into the bond ETF arena to compete with Gross. DoubleLine’s Total Return Bond Fund, which totals $33 billion in assets and specializes in mortgage-related debt, has been in the top 5% of bond funds over the past three years, according Bloomberg. Doubleline’s new SPDR Total Return ETF, however, will have a broader bond-market focus, at least according to a May 30th SEC filing.

As a smaller fund, the new ETF will be more agile as it deals with a market that’s trading close to the slowest rate ever. Even though corporate bonds have grown by more than 22% from December 2010 to December 2013,  average daily trading volumes have declined by 12% during that same three years, according to recent data from the Securities Industry and Financial Markets Association.