PIMCO will pay nearly $20 million to settle charges that it misled investors concerning the performance of PIMCO’s Total Return ETF (BOND), one of its first actively managed exchange-traded funds, according to a press announcement from the SEC today.
The fund which was launched in February 2012,attracted significant investor attention for its surprising performance which was attributable to buying smaller-sized bonds known as ‘odd lots’ as part of a strategy to help bolster performance out of the gate, according to the SEC.
PIMCO allegedly misled investors for the reasons for the ETF’s outperformance. Investors were not told of the true long-term impact of its odd lot strategy andwere denied the opportunity to make fully informed investment decisions about the Total Return ETF.
The odd lot strategy caused the Total Return ETF to overvalue its portfolio, the SEC said.
By blindly relying on the vendor’s price for round lots without any reasonable basis to believe it accurately reflected what the fund would receive if it sold the odd lots, PIMCO allegedly overstated the Total Return ETF’s net asset value (NAV) by as much as 31 cents. In addition, they allegedly valued these bonds using prices provided by a third-party pricing vendor for round lots, which are larger-sized bonds compared to odd lots.
For more on The White Law Group’s investigation of PIMCO, see Investor Alert: PIMCO StocksPLUS Short Fund.
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