After months of talk, one of the most exciting launches yet in the exchange traded fund (ETF) business is set to happen today: Pacific Investment Management Co. (PIMCO) is now an ETF 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), which focuses on low-yielding short-term Treasuries. 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).
PIMCO recognizes that competition is fierce, but they are also sensitive to the fact that current yields are close to historic lows. To lure those looking for a strong fixed-income brand name at a reasonable price, the fund will have a 0.09% expense ratio after waiving a portion of the fees for at least a year. That’s less than any other bond ETF tracked by Morningstar, notes Ian Salisbury for The Wall Street Journal. SHY’s expense ratio is 0.15%.
The fund will track the return of the Merrill Lynch 1-3 Year U.S. Treasury Index. Dividends will be declared and distributed on a monthly basis. I saw the portfolio manager, Vineer Bhansali, at the Morningstar Conference in Chicago last week, and he was especially impressive.
PIMCO’s entry could potentially change the ETF business. Several other bond ETF families have opened and then closed, but Salisbury says that none of them had the cache of PIMCO, which manages $760 billion. On top of that, a number of big mutual fund families have largely shrugged off ETFs, so PIMCO’s entry could mark a turning point on that front, as well.
Down the road, PIMCO has discussed offering actively managed bond ETFs as a way to highlight its skill in the bond market and earn heftier fees.
The bottom line is, with PIMCO’s track record, they’re going to give iShares and others a run for their money. It’s a real turning point, and could mark the beginning of a new era in the ETF industry.
The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.