PIMCO MINTs a Winner with Money Fund Alternative ETF

September 10th at 1:54pm by John Spence

Inflows of more than $2 billion so far this year have vaulted PIMCO Enhanced Short Maturity ETF (NYSEArca: MINT) to the top slot among actively managed exchange traded funds.

In fact, MINT recently passed PIMCO Total Return ETF (NYSEArca: BOND), which is managed by Bill Gross, as the largest active ETF. [PIMCO ETFs Trading Places]

MINT has proven popular with investors seeking an alternative to low-yielding money market funds, as well as access to PIMCO’s expertise in managing bond portfolios.

PIMCO is the largest provider of active ETFs in terms of assets. It manages seven active ETFs with total assets of $8.6 billion, or 59.6% market share, according to data from AdvisorShares. Overall assets in actively managed ETFs have increased by $983 million this year with 12 new funds launching.

MINT holds assets of about $4.2 after pulling in $2.1 billion of assets this year, according to IndexUniverse flow data. MINT invests primarily in short-duration investment grade debt securities. The fund seeks an average portfolio duration of less than one year and is overseen by Jerome Schneider at PIMCO.

MINT has capitalized on uncertainty surrounding the money market fund business in the wake of the financial crisis and the Lehman Brothers bankruptcy. In Setember 2008, the Reserve Primary Fund “broke the buck” as a result of losses on Lehman paper. The news triggered a run on money market funds and forced the U.S. Treasury to insure all money market deposits.

“The realization that money market funds are really banks in disguise has led regulators to restrict the funds from owning too many illiquid or high-yielding cash instruments. Combine this with the lowest interest rates in generations and regulators on the warpath to reform the MMF industry, and you have a doomed business model. Enter PIMCO Enhanced Short Maturity Strategy (MINT),” says Morningstar analyst Samuel Lee in a report on the ETF.

“The fund is an unabashed piece of regulatory arbitrage. It’s designed to skirt money market fund rules, allowing it to own the securities just beyond the bright line that regulators have drawn,” he added. “There’s value in that in-between land that’s too long for most MMFs and too short for most short-duration bond funds. One, however, must never forget that MINT is not a MMF. It does not guarantee a fixed price level. It’s also not too big to fail, so don’t expect the government to ride to the rescue should it need rescuing.”

MINT charges an expense ratio of 0.35%.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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