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By Shannon Zimmerman | 10-05-2012 12:00 PM

PIMCO Getting Comfortable With ETFs

PIMCO's Vineer Bhansali says investors should consider active ETFs over traditional indexed vehicles because the latter are carrying very low yields and few prospects for price gains.

Shannon Zimmerman: For Morningstar, I am Shannon Zimmerman. I'm here today with Vineer Bhansali of PIMCO. Vineer is a managing director and portfolio manager at PIMCO, and also oversees PIMCO's quantitative strategies. Thanks very much for joining us, Vineer.

Vineer Bhansali: My pleasure.

Zimmerman: Vineer, you gave your talk at Morningstar's ETF Conference, and it's a very interesting title, a pun or a play on Dr. Strangelove: "How We Learn to Stop Worrying and Love the Active ETF." Is that the name?

Bhansali: That's correct.

Zimmerman: Just to set us up for this segment. Can you talk a little bit about what you talked about at the conference? How did PIMCO come to embrace the active ETF?

Bhansali: I think the pun, the movie analogy really was brought to me just a few days ago by Scott Burns. Scott mentioned why he used the title, and suddenly I realized that I had watched the movie 20 years ago. So, I watched it again on the plane yesterday and [saw what] a lot of the logical elements of how we actually went from being a nonparticipant in the ETF market to launching BOND and then what came after BOND happened to be.

I think the main thrust is that we took baby steps first to make sure that our operational processes were in place and that our reluctance regarding the portfolio disclosure and showing how we do things was not going to impede our other strategies and other funds. And [we really wanted to make] sure that if you're going to do this, we could add value for investors.

So, at the end of the day, I think the one thing that investors should take home is that PIMCO is vehicle-agnostic in terms of how we offer our products, and the ETF is a natural place for numerous investors who desire transparency. But at the end of the day, you are getting the same investment process, the same skill set that you get with our mutual funds. The reason you might want to do that with an active ETF like BOND is that the indexed ETFs have been forced because of the forces of financial depression to holding securities with very, very low yield. And there's really very little prospect for price gains.

So here you can add value for investors very simply by buying securities that prevent you from getting into that mob mentality of buying overly priced, high-priced securities.

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