Investors flee Pimco, but should you?

There may have never been a greater exodus of money from a fund family than the one experienced by the Pacific Investment Management Company, otherwise known as Pimco, this past fall. Legendary fund manager Bill Gross left the bond fund giant last September, and more than $25 billion worth of investments in the Pimco Total Return Bond mutual funds and exchange-traded funds soon followed him out the door, finding new homes ­elsewhere. (Some of that money followed Gross to another fund family, Janus, his new employer.)

Institutional investors immediately put Pimco on watch lists, a possible first step to moving their investments away from the firm. Although Gross' departure hastened the race to the exits, Pimco had been steadily losing money for more than a year—another reason investors have become more open to other opportunities for their capital and have moved money away from the relative safety of most of the bonds within Pimco's funds.

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The Pimco Total Return Bond ETF (ticker: BOND) is an interesting ETF, not only because Bill Gross managed the holdings but also because its holdings are managed at all. Actively managed ETFs are still a rarity. Most ETFs simply attempt to hew to an index as closely as possible. But the BOND ETF mimics its cousin, the Pimco Total Return Bond Fund (ticker: PTTRX), a mutual fund that attempts to outperform the Barclay Capital Aggregate Bond index.

Just because others are leaving Pimco, including its ETF, is no reason for you to do the same. We're tempted to cite your mother's bromide about your friend Johnny jumping into the lake. Although Pimco attempts to beat the market by trying to determine the direction interest rates are headed, it has done an admirable job, until recently, and its success was not due entirely to one man. The fund is monitored by experienced managers, and there are still opportunities for it to provide investors with decent risk-adjusted returns.

If leaving Pimco is something you have been considering, don't let the fact that many others have recently high-tailed it out influence your decision. Instead, consider the extra cost you must pay to Pimco to attempt to beat the index. The Vanguard Total Bond Market ETF sports an expense ratio of just 0.08 percent annually, almost a half percentage point less than the 0.55 percent annually that BOND costs. Then consider its actual performance. For bonds, beating the index by even a half percentage point is quite a tall order, and over the past year, BOND returned the same 5.2 percent as Vanguard Total Bond.

—Chris Horymski