Investors, though, need to be aware that the fund is still based on government bonds and interest rate risks still apply. However, central bankers may not hike rates any time soon. The U.S. is still holding out until 2014, Brazil recently cut rates by 75 basis points and India reduced rates by 50 basis points.
“Don’t expect central banks to raise rates across the globe over the next year or two,” Worah added.
To get an idea of what the overall ILB fund will yield, take a look at U.S. Treasury Inflation-Protected Securities ETFs; TIPS are generating inflation minus 9 basis points, or inflation plus zero, pointed out. ILB, though, would have a target yield of around inflation plus 1.5%.
The ILB ETF comes at an opportune time when advisors are increasingly looking for fixed-income assets. With Treasury yields at their historic lows, advisors have been expanding their fixed-income horizons, targeting overseas markets. Specifically, in the emerging markets space, higher growth prospects coupled with stable balance sheets have attracted more advisor interest.
“In this uncertain global economy, some of the key drivers of growth are developing economies, which are often more sensitive to inflationary pressures like commodity prices,” Worah said in the press release. “Our forward-looking Global Advantage approach aims to expose investors to the inflation-linked bonds and currencies of these faster-growing economies, potentially resulting in higher real yields than traditional investing using market cap-weighting.”
The ETF will be PIMCO’s latest addition to its active bond fund suite.
“We are serious about the active ETF Space,” PIMCO’s Bill Gross told me leading up to the ETF Virtual Summit.