SEC Says Pimco Total Return ETF May Trade Derivatives

(Bloomberg) — The U.S. Securities and Exchange Commission approved the use of derivatives in Pacific Investment Management Co.s Total Return exchange-traded fund, allowing it to more closely track the worlds biggest bond mutual fund.

The regulatory bodys approval of the Nov. 6 request to amend the ETFs description means it will be able to invest in options, futures or swap agreements, according to the July 24 filing.

The $3.5 billion ETF follows a similar strategy to the firms $223 billion Total Return mutual fund. Both are managed by Bill Gross, co-founder of Newport Beach, California-based Pimco, who uses a combination of options, futures and swaps, along with traditional bonds, for his mutual fund. The ETF returned 4.7 percent this year through yesterday, compared with a 3.8 percent return for the mutual fund.

TheSECfroze approval for new ETFs that make significant use of derivatives in March 2010 after warning that some products could confuse individual investors. It lifted that ban two years later, provided the funds met requirements on managing risk and disclosure.

ETF Trends first reported the change at Pimcos fund.