By Jennifer Ablan
April 22 Pacific Investment Management Co.,
PIMCO, the $2 trillion firm run by Bill Gross and Mohamed
El-Erian, said on Monday that it will launch three actively
managed exchange-traded funds that will share strategies similar
to some of its existing bond funds.
The firm exited a quiet period on Monday for the PIMCO
Diversified Income Exchange-Traded Fund, PIMCO Low Duration
Exchange-Traded Fund and the PIMCO Real Return Exchange-Traded
Fund, according to a filing with the U.S. Securities Exchange
The expected launch date for the new ETFs has not been set.
They are being rolled out amid insatiable demand for yield given
the persistently low-interest-rate environment and follow the
successful launch of Gross' PIMCO Total Return Fund ETF
BOND, which gathered more than $1 billion in its first three
months, now has more than $5 billion in assets, according to
PIMCO's website. The ETF is posting Net Asset Value returns
(after fees) of 1.17 percent so far this year versus its big
brother, the $289 billion Total Return mutual bond, returning
0.60 percent for the same period.
"The smaller portfolio would do better because it's easier
to move the needle on a $5 billion fund rather than a $289
billion one," said Eric Jacobson, director of fixed-income
research at Morningstar.
The Diversified Income strategy, which comes with a net
annual expense ratio of 0.85 percent, will invest "under normal
circumstances" at least 65 percent of its total assets in a
diversified portfolio of fixed-income instruments of varying
maturities, which may be represented by forward contracts. The
strategy will also comprise debt securities from U.S. and
non-U.S. issuers, both public and private-sector entities.
The average portfolio duration of the Diversified Income
Fund will vary from three to eight years, based on PIMCO's
forecast for interest rates.
The PIMCO Low Duration Exchange-Traded Fund, which comes
with a net annual expense ratio of 0.55 percent, will also
invest at least 65 percent of its total assets in a diversified
portfolio of fixed income instruments but with an average
portfolio duration from one to three years.
The filing said the fund invests primarily in
investment-grade debt securities, but may invest up to 10
percent of its total assets in high yield securities ("junk
bonds") rated B or higher by Moody's Investors Service, Inc., or
equivalently rated by Standard & Poor's Rating Services or
The fund also may invest up to 30 percent of its total
assets in securities denominated in foreign currencies, and may
invest beyond this limit in U.S. dollar-denominated securities
of foreign issuers. The fund will normally limit its foreign
currency exposure (from non-U.S. dollar-denominated securities
or currencies) to 20 percent of its total assets. The fund may
invest up to 10 percent of its total assets in securities and
instruments that are economically tied to emerging market
For its part, the PIMCO Real Return Exchange-Traded Fund,
which comes with a net annual expense ratio of 0.55 percent,
seeks its investment objective by earmarking at least 80 percent
of its net assets in inflation-indexed bonds of varying
maturities issued by the U.S. and non-U.S. governments, their
agencies or instrumentalities, and corporations.
Inflation-indexed bonds are fixed income securities that are
structured to provide protection against inflation. The value of
the bond's principal or the interest income paid on the bond is
adjusted to track changes in an official inflation measure. The
U.S. Treasury uses the Consumer Price Index for Urban Consumers
as the inflation measure.
The fund invests primarily in investment-grade securities,
but may invest up to 10 percent of its total assets in junk
bonds rated B or higher by Moody's Investors, or equivalently
rated by S&P or Fitch.