PIMCO Total Return ETF Undergoing SEC Investigation [REPORT]

PIMCO Total Return ETF Undergoing SEC Investigation [REPORT]
Bill Gross at the Morningstar conference in Chicago - June 19th 2014 photo by ValueWalk

The Securities and Exchange Commission (SEC) is conducting an investigation against the flagship exchange traded fund (ETF) of Pacific Investment Management Company (PIMCO) on allegations that it is inflating asset prices to increase returns.

PIMCO has been cooperating with the SEC probe

The commission’s investigation regarding PIMCO’s pricing issues has been in progress for several months, according to  Kirsten Grind, Gregory Zuckerman and Jean Eaglesham of the Wall Street Journal based on information from people familiar with the situation.

The enforcement division of the SEC is investigating whether PIMCO Total Return ETF purchased investments at lower prices, but it relied on a higher valuation when computing the value of its holdings.

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In a statement, Mark Porterfield, spokesperson for PIMCO said the fund “has been cooperating with the SEC” in connection with the non-public matter. He emphasized that the management of the fund is taking its regulatory obligations and responsibilities to its clients very seriously.

“We believe our pricing procedures are entirely appropriate and in keeping with industry best-practices,” according to Porterfield.

SEC investigators interviewed PIMCO CIO Bill Gross

The investigators of the SEC interviewed Bill Gross, founder, managing director and CIO of PIMCO regarding the issue six months ago, according to the people familiar with the matter. They are also questioning other executives of the firm.

The sources suggested that the commission’s investigation is probably focused on the accuracy of the information provided to investors regarding the performance of PIMCO Total Return ETF fund.

PIMCO Total Return ETF Performance

Since its establishment in March 2012, PIMCO Total Return ETF generated 16% returns. Data compiled by Bloomberg showed that its performance was higher than the 9.1 returns of PIMCO Total Return and 5.6 percent returns of Barclays U.S. Aggregate Index for bonds.

PIMCO Total Return ETF increased 5% this year compared with the 3.6% gain for the mutual fund and 4.6% for the index.

The PIMCO Total Return mutual fund suffered redemption for 16 consecutive months as returns underperform its competitors in the industry. Investors also moved away from traditional fixed-income strategies while anticipating an increase in interest rates.

Morningstar estimated that investors redeemed as much as $41.1 billion from the fund last year and another $24.8 billion until August this year.

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