PIMCO Files for Active Bond ETFs

PIMCO on Wednesday filed with the SEC to launch five new actively managed fixed-income ETFs. The West Coast money management firm plans to launch a trio of short duration funds: PIMCO Enhanced Short Maturity Strategy Fund, PIMCO Government Limited Maturity Strategy Fund, and PIMCO Prime Limited Maturity Strategy. It also filed for a pair of tax-exempt active ETFs: PIMCO Short Term Municipal Bond Strategy and PIMCO Intermediate Municipal Bond Strategy Fund.

Although not a precise comparison, the short-duration class of funds look to be taking on the same investment objectives as  PIMCO Short-Term , a fund managed by Paul McCulley. The filing did not say who will be managing the active short-duration ETFs in the group. It did, however, name John Cummings as the manager of the municipal bond offerings. Cummings heads up PIMCO's Municipal bond group and currently manages  PIMCO Municipal Bond (PFMIX). It is interesting that PIMCO plans to put such a high-profile manager in charge of the new ETF offerings.

Typical of early-stage ETF filings, the document was light on one of the most crucial details--namely expense ratios. The retail-level fees for PIMCO Short-Term and PIMCO Municipal Bond are 0.75% and 0.78%, respectively. This is triple what the typical index-based bond ETF in these categories charges, so it will be interesting to see if PIMCO comes in lower when all is said and done. Another entry in the active ETF space, Grail American Beacon Large Value ETF , is 29 basis points cheaper than its near-twin mutual fund offering  American Beacon Lg Cap Value (AVASX).

We also think it is curious that PIMCO would look to launch active funds in the tax-exempt space. This negates the tax-efficiency advantage that the ETF structure has over the open-end structure. PIMCO Municipal Bond has never made a taxable distribution in its history. On the other hand, even though PIMCO Short-Term has been a tax-efficient fund over the years, every little bit helps. Last year the fund distributed $0.15 of capital gains to shareholders on a NAV that finished the year at $9.22. If PIMCO had harnessed the tax efficiency of the ETF structure, investors in taxable accounts wouldn't have had to give up roughly 1.6 percentage points to Uncle Sam. Given that the fund has a three-year average return of 3.78%, this is not an immaterial number.

We didn't quite get the big-daddy,  PIMCO Total Return , into an ETF structure, as we have been looking for, but we do view this filing as a move in that direction. While PIMCO is taking it slow, we have no doubt that the rest of the fund industry--ETF and open-end--have taken note, and we expect the entrance of other participants to only accelerate from here.

  

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