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By Jennifer Ablan
NEW YORK, July 29 (Reuters) - PIMCO is planning to offer its first bond exchange-traded fund, or ETF, in a move to bolster its presence as a full-service money manager, according to documents filed with the U.S. Securities and Exchange Commission on Tuesday.
The bond ETF aims to replicate the Lehman Brothers Aggregate Index, the leading barometer of all types of bonds, much like the iShares Lehman Aggregate Bond (AGG, US), Vanguard Total Bond Market (BND, US) and SPDR Lehman Aggregate Bond (LAG, US).
PIMCO’s foray into ETFs “is a part of a much bigger effort that looks to complement our existing products by offering strategies that we believe are of interest to an even broader set of investors,” Mohamed El-Erian, co-chief executive officer of the world’s largest bond fund company, told Reuters in a telephone interview.
PIMCO, which oversees $830 billion in assets, is likely to launch its bond ETF later this year or in early 2009.
“We are responding to existing investor demand and we believe we can offer a product that is a natural extension of our investment platform and provide better solutions to investor needs,” El-Erian said from Pacific Investment Management Co’s Newport Beach, California headquarters.
Investors who use bond ETFs are often drawn to their low costs and liquidity, since they can be traded throughout the day like individual securities.
As of late May, more than 60 bond ETFs were listed on U.S. exchanges with $44 billion in total assets, according to Morgan Stanley.
But that pales in comparison with their stock-fund cousins.
As of late May, there were 688 ETFs listed in the U.S., with total assets of $615 billion, most of which are exposed to equities, Morgan Stanley analysts led by Paul Mazzilli wrote in a May 22 research note.
Known as one of the most successful active fixed-income managers, PIMCO is broadening its investment reach to include such “passively managed” approaches as the bond ETF.
El-Erian said PIMCO has been working on the ETF for the last 12 months. PIMCO, a unit of giant German insurer Allianz (ALVG.DE), has rolled out other strategies in recent months, including a flexible bond fund that is not tied to benchmarks and which may invest in emerging markets, high-yield corporate bonds, mortgage- and asset-backed securities, and derivatives.
Earlier this year, PIMCO launched the Global Advantage Fund, which will invest at least 65 percent of its assets in fixed-income instruments that are economically tied to at least three countries.
“We are broadening and deepening our product offerings,” said El-Erian, who will run Global Advantage and is regarded as one of the best emerging-market specialists. He made winning bets on Brazilian and Russian bonds in 2002 and 2003.
The popularity for investment-grade-rated fixed-income securities and instruments has grown amid the turmoil in several parts of the global equity markets. PIMCO’s flagship Total Return fund has attracted $130 billion in assets, up from $100 billion a little more than a year ago. That increase came as Bill Gross, at the helm of Total Return and PIMCO, predicted a U.S. housing downturn, rooted in the huge rise in mortgage defaults, that would take a toll on the economy and force central bank interest rate cuts.
Since last year, exposure by global financial institutions to subprime mortgage debt and structured finance products has resulted in more than $400 billion of write-downs and losses. (Reporting by Jennifer Ablan in New York; Editing by Jonathan Oatis)