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A Thoughtful Transition for This Silver-Rated PIMCO ETF

Sarah Bush

Sarah Bush: PIMCO Active Bond ETF draws on PIMCO's many strengths. The strategy and team here have seen some changes in recent years. The ETF previously shared a name and investment team with the firm's flagship, PIMCO Total Return. However, in May 2017, the fund got a new name, a new strategy, and a new management team.

While such changes can be cause for alarm, PIMCO has been thoughtful about this fund's new mandate and has carved out a niche separate from PIMCO Total Return. Under its new guise, the fund is focused on income, which sets it apart from the flagship fund's total return mandate. In keeping with this focus, the fund has increased flexibility to invest in high-yield, which can now reach to 30% of the portfolio.

The new team is also well suited to the fund's approach with members offering complementary skill sets. Dan Hyman is a mortgage expert; David Braun heads up the firm's U.S. financial institutions group portfolio management team and also has experience managing tax-aware and income-focused portfolios; finally Jerome Schneider, a past winner of Morningstar's Fund Manager of the Year award, brings expertise in managing liquidity and active ETF portfolios. The three managers are supported by PIMCO's usual depth of analytical resources.

The mutual fund industry has a bad history with income-driven strategies that court excessive risk, so it's encouraging that this fund has shown restraint so far. Indeed, high-yield accounted for just over 4% of the portfolio as of October 2018. While this fund's flexibility to hold junk bonds could mean that it looks more aggressive at some point in the future, PIMCO takes a thoughtful approach to risk management.

All in all, PIMCO Active Bond ETF is an attractive choice and earns a Morningstar Analyst Rating of Silver.