PIMCO Is Getting Started With ETFs

Earlier this week, bond giant PIMCO made a splash with its first exchange traded fund (ETF) offering, but that’s just the beginning for the new provider.

PIMCO is the leader in fixed-income management, so it’s fitting that their first offering  is the PIMCO 1-3 Year U.S. Treasury Index Fund (TUZ: 50.03 0.00 0.00%), which focuses on low-yielding short-term Treasuries. The fund will track the return of the Merrill Lynch 1-3 Year U.S. Treasury Index. The launch is especially exciting, because it’s going to go head-to-head with the grandfather of Treasury ETFs, iShares Barclays 1-3 Year Treasury Bond (SHY: 83.76 0.00 0.00%).

But PIMCO has also filed for six more ETFs that will cover longer-dated Treasuries and Treasury Inflated Protected Securities (TIPS). PIMCO hopes to utilize its expertise in the bond market to design ETFs that are easier to use for market makers than other types of bond ETFs, states Ian Salisbury for Dow Jones Newswires.

We caught up with Don Suskind, product manager at PIMCO, and Tammie Arnold, managing director, who shared their thoughts with us on being a new ETF market player and where they’re going from here.

PIMCO felt the time was right to get into ETFs after looking at the variety of other vehicles the firm offers, from mutual funds to closed end funds. “ETFs are a natural extension,” Suskind says. “It was a pretty natural continuation of what we’re doing.”

Many have heralded PIMCO’s entry into the ETF space as a turning point for the industry - that such a major mutual fund player would jump on board, some think, may naturally lead to other mutual fund giants embracing ETFs, as well. But Suskind is taking a wait-and-see approach as to how the industry responds.

“It remains to be seen. We hope to do well, and to do that, we’re attempting to design products that will function well with market making and liquidity considerations.”

Arnold says, “What we hope is that we can bring a different perspective, and our expertise, as a positive factor.”

PIMCO’s prominence and expertise as a bond manager could potentially set them apart in the long run. “Because we’re an active manager and trading in bond markets throughout the day, our insight into bond pricing and availability is strong. That puts PIMCO in a slightly different category,” Suskind notes.

The response from the industry and investors so far seems to have been positive, Arnold and Suskind note. It all boils down to having more choices, and delivering them in a convenient vehicle like ETFs. “For all the reasons people appreciate ETFs, they appreciate having the expertise in fixed income management,” says Suskind.

In addition to the filing for six funds, exemptive relief for actively managed ETFs based on currencies, commodities, equities and asset allocation has also been filed.

The ETFs will include the following:

• an ETF that will track the 3-7 Year U.S. Treasury Indexes
• an ETF that will track the 7-15 Year U.S. Treasury Indexes
• an ETF that will track the 15+ Year U.S. Treasury market
• a Broad U.S. TIPS Index
• a Short Maturity U.S. TIPS Index
• a Long Maturity U.S. TIPS Index